FIRSTENERGY | Global Energy Conference September 2014 GRAN TIERRA ENERGY INC. (GTE) ANALYST: Darren B. Engels, CA, CFA Price 09/05/2014: C$7.05 OUTPERFORM| 12m Target Price: C$11.50 ASSOCIATE: A. Mark Jackson, CFA Corporate Profile GTE - Putumayo Basin-- Core Core Position GTE - Putumayo Basin Position (September 2014) Gran Tierra Energy holds interests in a total of 34 blocks in Colombia, Peru, and Brazil, totalling approximately 10 mm acres. The Company has 1P reserves of 51 mmboe, 2P reserves of 127 mmboe, and 3P reserves of 200 mmboe (post the disposition of the Argentinian business unit). A significant uptick to YE13 reserves was witnessed due to the contribution of the Bretana Field in Peru that added 62 mmbbl of 2P reserves and 114 mmbbl of 3P reserves. Andes Mountains OTA Pipeline Operational Update The Company’s Colombian operations are predominantly focused in the Putumayo Basin. The main producing asset of the Company is the Costayaco Field on the Chaza Block, while the neighbouring Moqueta Field is becoming increasingly significant with production expected to ramp up in late 2014e and 2015e, once the global development permit is received. Investment Summary We have assigned Gran Tierra an Outperform ranking and a target price of C$11.50 per share, which is based on our RENAV estimate. The stock is trading well below our Core NAV estimate of C$8.22 per share. Investors are not ascribing full value to the Company’s 2P reserves and zero value to the possible reserves and risked exploration potential. This provides tremendous downside support for an investment in Gran Tierra, which is about to embark on a very meaningful exploration drilling program for the remainder of 2014e. 54 Gran Tierra Energy Inc. (TSX: GTE) 25 20 15 10 5 Jul-14 Jan-14 Jul-13 Jan-13 Jul-12 Jan-12 0 Source: Bloomberg Source: Bloomberg Management and Board Members • Dana Coffield - President & Chief Executive Officer • James Rozon - Chief Financial Officer • Duncan Nightingale - Chief Operations Officer • Adrian Coral - President, Gran Tierra Energy Colombia • Jeffrey Scott - Chairman Trading Volume (mm) $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 Jul-11 Brazil remains a potential source of longer term upside. The Company is undertaking an exploration program that is focused on understanding the unconventional potential of the basin. Production from the conventional Tie Field remains restricted due to flaring. Source: FirstEnergy Capital, Gran Tierra Energy Inc. September Presentation 2014 Source: FirstEnergy Capital Corp., Gran Tierra Energy Inc. September presentation 2014 Jan-11 Development activities in Peru continue with the longterm production test of the Bretana discovery expected to commence in November 2014e at approximately 2,500 bbl/d. The Bretana Sur appraisal well is scheduled for 4Q14e, which if successful, has the potential to reclassify 52 mmbbl of possible reserves into the 2P reserve category. Ecuador Closing Price Gran Tierra is expected to spud the Corunta-1A exploration well in late September 2014e, after the Costayaco-19 well. The original well was a long-reach deviated well that encountered drilling problems. This prospect lies between Gran Tierra’s two main fields. The Company will also drill three other exploration wells in Colombia prior to year-end 2014. The upcoming exploration campaign has the potential to be very impactful to the Company. We conservatively value the Colombian exploration portfolio at C$1.40 per share unrisked (C$0.49 per share risked). 25 km FIRSTENERGY | Global Energy Conference September 2014 GRAN TIERRA ENERGY INC. (GTE) Year-end December 31 2012a Production and Sales Volumes Crude oil and liquids - bbl/d Natural gas - mmcf/d Total production - boe/d Sales volumes - boe/d Crude oil and liquids weight - % Netbacks Realized price - US$/boe Royalties - US$/boe Operating and transport costs - US$/boe Operating netback - US$/boe G&A expense - US$/boe Taxes - US$/boe Cash flow netback - US$/boe Government take - % 2013a 2014e 2015e 22,824 4.8 23,616 16,897 97% 28,347 4.5 29,099 22,266 97% 27,475 3.9 28,122 20,824 98% 29,399 1.4 29,634 24,246 99% 88.39 20.86 14.45 53.08 5.42 8.24 37.55 33% 89.27 21.43 14.03 53.80 4.19 15.54 33.23 41% 81.43 19.19 10.88 51.96 4.50 11.57 35.75 38% 87.90 15.98 15.85 56.06 4.27 12.52 39.08 32% 325 1.15 353 1.24 367 1.27 423 1.46 Financials Cash flow - US$mm CFPS - US$/diluted share 2012a 2013a 2014e 2015e -1% -1% 1% 22% 18% 8% -5% -5% 3% 5% 1% 15% 23.31 25.21 18.97 19.54 20.54 22.57 PDP Recycle Ratio 1P Recycle Ratio 2P Recycle Ratio 1.6 1.5 2.0 1.7 1.6 1.5 ROE - % ROCE - % 8% 8% 9% 9% 11% 11% 12% 12% 5.50 7.75 7.05 7.05 4.8 15.6 6.3 17.5 5.6 12.6 4.8 10.4 4.1 9.4 5.3 8.2 4.5 7.7 4.1 6.9 56,749 128,954 64,625 99,984 59,057 101,047 58,153 97,720 EV per boe - US$/PDP boe EV per boe - US$/1P boe EV per boe - US$/2P boe 36.06 25.40 18.20 44.21 33.92 13.99 41.71 32.61 13.07 41.71 32.61 13.07 EV per boe - US$/1P boe with FDC EV per boe - US$/2P boe with FDC 31.43 23.32 39.12 26.52 36.65 25.31 5.96 92% 7.69 101% 8.22 86% 8.22 86% RENAV (Atax, 12%) - $/share Price / RENAV 7.50 73% 11.52 67% 11.38 62% 11.38 62% ENAV (Atax, 12%) - $/share Price / ENAV N/A N/A 14.93 52% 14.14 50% 111.68 94.18 1.00 108.74 98.02 0.97 107.56 100.08 0.91 Performance Production per share growth Production per debt adjusted share growth Cash flow per share growth Cash flow per debt adjusted share growth PDP FD&A (all-in) - US$/boe 1P FD&A (all-in) - US$/boe 2P FD&A (all-in) - US$/boe Valuation Closing price - $/share P/CF P/E Net income - US$ mm EPS - US$/diluted share 100 0.35 126 0.44 162 0.56 196 0.68 E&D Capex - US$mm A&D Capex - US$mm Total Capex - US$mm Capex - E&D / cash flow 312 -1 312 96% 367 -60 308 104% 482 -43 439 131% 520 0 520 123% Line of credit - US$mm Entry debt to cash flow Net debt / LOC 200 N/A -1.1 200 N/A -1.2 200 N/A -1.0 200 N/A -0.7 Dividends and Sustainability Dividends - US$mm Dividends - $/share Dividend yield - % 0 0.00 0% 0 0.00 0% 0 0.00 0% 0 0.00 0% Free cash flow - US$mm Cash use / cash flow 13 96% 45 87% -72 120% -97 123% Capital Structure Basic shares - mm Diluted shares - mm Year-end December 31 281 282 283 288 285 289 285 289 Market cap - US$mm 1,563 Enterprise value - US$mm 1,340 Net debt - US$mm -223 Total debt - US$mm 0 Debt to total capitalization 0% Source: FirstEnergy Capital Corp. and Company Reports 2,126 1,881 -246 0 0% 1,871 1,661 -210 0 0% 1,858 1,723 -134 0 0% EV/DACF Target EV/DACF EV per boe/d Target EV per boe/d Net Asset Value CNAV (Atax, 12%) - $/share Price / CNAV Commodity Prices Brent - US$/bbl WTI - US$/bbl Exchange rate - US$/C$ 103.75 98.25 0.91 Gran Tierra Energy Core NAV and Risked NAV Core NAV Financial Cash balance Working capital Long-term debt Net debt $mm $/share 242 0.84 230 0.79 0 0.00 -230 0.79 Reserves Colombia Proved plus probable Peru Proved plus probable Brazil Proved plus probable Core NAV $mm $/share mmboe $/boe 60 24.29 1,453 5.02 62 8.57 527 1.82 6 127 28.73 18.70 169 2,379 0.58 8.22 Risked Exploration Upside Drill Date Colombia Costayaco Field possible reserves Moqueta Field possible reserves WI % Resource Potential Gross Net Net Unrisked Unrisked Risked COS % (mmbbl) (mmbbl) (mmbbl) NPV $/bbl $mm $/share 100% 100% 100% 100% 100% 100% 6 9 15 6 9 15 6 9 15 17.94 17.94 17.94 100 169 269 0.34 0.59 0.93 3Q14e 3Q14e 4Q14e 4Q14e 100% 100% 100% 55% 91% 40% 30% 30% 30% 34% 10 5 5 5 25 10 5 5 3 23 4 2 2 1 8 17.94 17.94 17.94 17.94 17.94 72 27 27 15 140 0.25 0.09 0.09 0.05 0.48 4Q14e 2015e 100% 100% 100% 75% 20% 57% 52 25 78 52 25 78 39 5 44 6.03 6.03 6.03 237 30 267 0.82 0.10 0.92 100% 100% 35% 35% 30 30 30 30 11 11 22.60 22.60 237 237 0.82 0.82 98% 53% 148 145 Colombia Corunta-1A Eslabon Sur Shallow-1 Eslabon Sur Deep-1 Cabanas-1 Peru Block 95, Bretana Sur - Possible Block 95, Envidia-1 Brazil 2015e exploration Risked Exploration Upside Risked NAV 78 11.77 914 3.16 205 16.07 3,293 11.38 Source: FirstEnergy Capital Corp. and Company Reports 55
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