sv1za
As
filed with the Securities and Exchange Commission on
November 13, 2007
Registration No. 333-146953
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GRAN TIERRA ENERGY INC.
(Exact name of registrant as specified in its charter)
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Nevada
(State or other jurisdiction of
incorporation or organization)
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1311
(Primary Standard Industrial
Classification Code Number)
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98-0479924
(I.R.S. Employer
Identification Number) |
300, 611-10th Avenue S.W.
Calgary, Alberta T2R 0B2
Canada
(403) 265-3221
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Dana Coffield
President & Chief Executive Officer
300, 611-10th Avenue S.W.
Calgary, Alberta T2R 0B2
Canada
(403) 265-3221
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copy to:
Nancy Wojtas, Esq.
Brett White, Esq.
Cooley Godward Kronish LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
(650) 843-5000
Approximate date of commencement of proposed sale to the public: From time to time as
determined by the selling stockholders after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
þ
If this form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering. o
The Registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a further amendment that
specifically states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration
Statement shall become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
CALCULATION OF REGISTRATION FEE
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Title of each class of |
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Proposed maximum |
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Proposed maximum |
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securities |
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Amount to be registered |
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offering price per |
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aggregate |
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Amount of |
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to be registered |
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(1)(2) |
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unit |
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offering price(1) |
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registration fee |
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Common Stock, par
value $0.001 per
share |
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21,555,215 |
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$1.78 (2) |
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$38,368,282.70 (2) |
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$1,177.91 (2) |
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(1) |
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Pursuant to Rule 416 under the Securities Act of 1933, as amended, the
number of shares of common stock registered hereby is subject to
adjustment to prevent dilution resulting from stock splits, stock
dividends or similar transactions. |
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(2) |
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Estimated solely for the purpose of determining the amount of the
registration fee, based on the average of the high and low sale price
of the common stock as reported by the OTC Bulletin Board on November 8,
2007 in accordance with Rule 457 (c) under the Securities Act of 1933.
$1,102.72 of this fee was previously paid.
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The information in this prospectus is not complete and may be changed. The selling
stockholders may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer to sell these
securities and is not soliciting offers to buy these securities in any state where the offer or
sale is not permitted.
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Prospectus
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SUBJECT TO COMPLETION, DATED
NOVEMBER 13, 2007
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21,555,215 shares of common stock
This prospectus relates to the offering by the selling stockholders of Gran Tierra Energy
Inc. of up to 21,555,215 shares of our common stock, par value $0.001 per share. These shares of
common stock consist of shares of common stock issued to, or issuable to, the selling stockholders upon
exchange of exchangeable shares of Gran Tierra Goldstrike, Inc., an indirect subsidiary of Gran
Tierra Energy Inc. previously held or currently held by the selling stockholders. The
exchangeable shares were issued to the selling stockholders in a private offering in November
2005. Also includes 2,825,059 shares issuable upon exercise of warrants held by three selling
stockholders issued in connection with a private placement in June 2006.
We will not receive any proceeds from the sale of common stock by the selling stockholders. We
may receive proceeds from the exercise price of the warrants if they are exercised by the selling
stockholders. We intend to use any proceeds received from the selling stockholders exercise of the
warrants for working capital and general corporate purposes.
The selling stockholders have advised us that they will sell the shares of common stock from
time to time in the open market, on the OTC Bulletin Board, in privately negotiated transactions or
a combination of these methods, at market prices prevailing at the time of sale, at prices related
to the prevailing market prices, at negotiated prices, or otherwise as described under the section
of this prospectus titled Plan of Distribution.
Our
common stock is traded on the OTC Bulletin Board under the symbol
GTRE.OB. On November 8,
2007, the closing price of the common stock was $1.75 per share.
Investing in our common stock involves risks. Before making any investment in our securities,
you should read and carefully consider risks described in the Risk Factors beginning on page 4 of
this prospectus.
You should rely only on the information contained in this prospectus or any prospectus
supplement or amendment. We have not authorized anyone to provide you with different information.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
This prospectus is dated , 2007
You should rely only on the information contained in this prospectus and any free-writing
prospectus that we authorize to be distributed to you. We have not authorized anyone to provide you
with information different from or in addition to that contained in this prospectus or any related
free-writing prospectus. If anyone provides you with different or inconsistent information, you
should not rely on it. The selling stockholders are offering to sell, and are seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of the common stock. Our
business, financial conditions, results of operations and prospects may have changed since that
date.
For investors outside of the United States: We have not done anything that would permit this
offering or possession or distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than in the United States. You are required to inform yourselves about
and to observe any restrictions relating to this offering and the distribution of this prospectus.
TABLE OF CONTENTS
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F-1 |
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EXHIBIT 5.1 |
1
SUMMARY
This summary highlights information contained elsewhere in this prospectus but might not
contain all of the information that is important to you. Before investing in our common stock, you
should read the entire prospectus carefully, including the Risk Factors section and our financial
statements and the notes thereto included elsewhere in this prospectus.
For purposes of this prospectus, unless otherwise indicated or the context otherwise requires,
all references herein to Gran Tierra, we, us, and our, refer to Gran Tierra Energy Inc., a
Nevada corporation, and our subsidiaries.
Our Company
On November 10, 2005, Goldstrike, Inc. (Goldstrike), Gran Tierra Energy Inc., a
privately-held Alberta corporation which we refer to as Gran Tierra Canada and the holders of
Gran Tierra Canadas capital stock entered into a share purchase agreement, and Goldstrike and Gran
Tierra Goldstrike Inc. (which we refer to as Goldstrike Exchange Co.) entered into an assignment
agreement. In these two transactions, the holders of Gran Tierra Canadas capital stock acquired
shares of either Goldstrike common stock or exchangeable shares of Goldstrike Exchange Co., and
Goldstrike Exchange Co. acquired substantially all of Gran Tierra Canadas capital stock.
Immediately following the transactions, Goldstrike Exchange Co. acquired the remaining shares of
Gran Tierra Canada outstanding after the initial share exchange for shares of common stock of Gran
Tierra Energy Inc. using the same exchange ratio as used in the initial exchange. This two step
process was part of a single transaction whereby Gran Tierra Canada became a wholly-owned
subsidiary of Goldstrike Inc. Additionally, Goldstrike changed its name to Gran Tierra Energy Inc.
with the management and business operations of Gran Tierra Canada, but remains incorporated in the
State of Nevada.
Following the above-described transaction, our operations and management are substantially the
operations and management of Gran Tierra Canada prior to the transactions. The former Gran Tierra
Canada was formed by an experienced management team in early 2005, with extensive hands-on
experience in oil and natural gas exploration and production in most of the worlds principal
petroleum producing regions. Our objective is to acquire and exploit international opportunities in
oil and natural gas exploration, development and production, focusing on South America. We made our
initial acquisition of oil and gas producing and non-producing properties in Argentina in September
2005. In addition, we recently acquired assets in Colombia and other minor interests in Argentina
and Peru.
Recent Developments
In September 2007, we announced that we had revised our revised initial estimates of
reserves as a result of two recent oil discoveries in Colombia. For our Costayaco oil discovery,
we now estimate proved reserves of 2.7 million barrels of oil. The discovery of the Costayaco
field in the Chaza Block, located in the Putumayo Basin of Colombia
and operated by us, was the result of drilling the Costayaco-1 exploration well in the second quarter
of 2007. This well tested 5,906 barrels of oil per day, gross before royalties.
For our Juanambu discovery, we now estimate proved reserves of 0.1 million barrels of
oil. The discovery of the Juanambu field in the Guayuyaco Block, also located in the Putumayo
Basin of Colombia and operated by us, was the result of drilling the
Juanambu-1 exploration well early in 2007. This well tested 778 barrels of oil per day, gross before royalties.
As a result of the adjustments and production for the first half of 2007, our estimate of
proved reserves, net of royalties, as of June 30, 2007, stands at 5.6 million barrels of oil. This
contrasts to our December 31, 2006 estimate of proved reserves of 3.0 million barrels of oil.
On November 8, 2007, Gran Tierra Energy announced its third quarter 2007 financial results. Total
revenue for the quarter was $8.0 million as compared to $5.4 million for same quarter of 2006. Net
income for the quarter amounted to $1.1 million or $0.01 per share as compared to a net loss of
$0.07 million or $(0.00) per share for the comparable quarter of 2006. For the nine month period
ended September 30, 2007 the company reported total revenue of $16.3 million as compared to $8.6
million for same period in 2006. Net loss for the period amounted to $10.6 million or $(0.11) per
share as compared to a net loss of $1.9 million or $(0.03) per share for the comparable period of
2006. Cash and cash equivalents were $8.0 million at the end of the third quarter of 2007 as
compared to $24.1 million at December 31, 2006. Total working capital reported at the end of the
quarter increased 30% over the previous quarter to $9.3 million and compares to $14.3 million at
December 31, 2006. Shareholders equity was reported at $74 million as compared to $76.2 million
at December 31, 2006. The company reported no outstanding long-term debt.
For the third quarter of 2007, the company reported oil and condensate production of 1,526 barrels
per day, net after royalty, as compared to 1,043 for the same quarter of 2006. For the nine month
period ended September 30, 2007 the company reported oil and condensate production of 1,270 barrels
per day, net after royalty, as compared to 570 barrels per day for the comparable period of 2006.
Corporate Information
Goldstrike Inc., now known as Gran Tierra Energy Inc., was incorporated under the laws of the
State of Nevada on June 6, 2003. Our principal executive offices
are located at 300, 611 - 10th Avenue S.W., Calgary, Alberta, Canada. The telephone number at our
principal executive offices is (403) 265-3221. Our website address is www.grantierra.com.
Information contained on our website is not deemed part of this prospectus.
2
The Offering
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Common stock currently outstanding (1)
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94,863,576 shares |
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Common stock offered by the selling stockholders (2)
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21,555,215 shares |
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Common stock outstanding after the offering (3)
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97,688,635 shares |
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Use of Proceeds
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We will not receive
any proceeds from
the sale of common
stock offered by
this prospectus. We
will receive the
proceeds from any
warrant exercises,
which we intend to
use for general
corporate purposes,
including for
working capital.
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OTC Bulletin Board Symbol
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GTRE.OB |
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(1) |
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Amounts are as of September 15, 2007. Also includes
14,946,030 shares of common stock which are
issuable upon the exchange of exchangeable shares of Goldstrike
Exchange Co. |
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(2) |
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Includes 2,825,059 shares of common stock underlying warrants issued to three of the selling
stockholders. |
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(3) |
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Assumes the full exercise of all 2,825,059 warrants. |
3
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider
the risks below before making an investment decision. Our business, financial condition or results
of operations could be materially adversely affected by any of these risks. In such case, the
trading price of our common stock could decline and you could lose all or part of your investment.
Risks Related to Our Business
We are a new enterprise engaged in the business of oil and natural gas exploration and
development. The business of exploring for, developing and producing oil and natural gas reserves
is inherently risky. We will face numerous and varied risks which may prevent us from achieving our
goals.
We are a Company With Limited Operating History for You to Evaluate Our Business. We May Never
Attain Profitability.
We have limited current oil or natural gas operations. As an oil and gas exploration and
development company with limited operating history, it is difficult for potential investors to
evaluate our business. Our proposed operations are therefore subject to all of the risks inherent
in light of the expenses, difficulties, complications and delays frequently encountered in
connection with the formation of any new business, as well as those risks that are specific to the
oil and gas industry. Investors should evaluate us in light of the delays, expenses, problems and
uncertainties frequently encountered by companies developing markets for new products, services and
technologies. We may never overcome these obstacles.
Our business is speculative and dependent upon the implementation of our business plan and our
ability to enter into agreements with third parties for the rights to exploit potential oil and gas
reserves on terms that will be commercially viable for us.
Unanticipated Problems in Our Operations May Harm Our Business and Our Viability.
If our operations in South America are disrupted and/or the economic integrity of these
projects is threatened for unexpected reasons, our business may experience a setback. These
unexpected events may be due to technical difficulties, operational difficulties which impact the
production, transport or sale of our products, geographic and weather conditions, business reasons
or otherwise. Because we are at the beginning stages of our development, we are particularly
vulnerable to these events. Prolonged problems may threaten the commercial viability of our
operations. Moreover, the occurrence of significant unforeseen conditions or events in connection
with our acquisition of operations in South America may cause us to question the thoroughness of
our due diligence and planning process which occurred before the acquisitions, which may cause us
to reevaluate our business model and the viability of our contemplated business. Such actions and
analysis may cause us to delay development efforts and to miss out on opportunities to expand our
operations.
We May Be Unable to Obtain Development Rights We Need to Build Our Business, and Our Financial
Condition and Results of Operations May Deteriorate.
Our business plan focuses on international exploration and production opportunities, initially
in South America and later in other parts of the world. Thus far, we have acquired interests for
exploration and development in nine properties in Argentina, eight properties in Colombia and two
properties in Peru. In the event that we do not succeed in negotiating additional property
acquisitions, our future prospects will likely be substantially limited, and our financial
condition and results of operations may deteriorate.
Our Lack of Diversification Will Increase the Risk of an Investment in Our Common Stock.
Our business will focus on the oil and gas industry in a limited number of properties,
initially in Argentina, Colombia and Peru, with the intention of expanding elsewhere in South
America and later into other parts of the world. Larger companies have the ability to manage their
risk by diversification. However, we will lack diversification, in terms of both the nature and
geographic scope of our business. As a result, factors affecting our
industry or the regions in which we operate will likely impact us more acutely than if our
business were more diversified.
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Strategic Relationships Upon Which We May Rely are Subject to Change, Which May Diminish Our
Ability to Conduct Our Operations.
Our ability to successfully bid on and acquire additional properties, to discover reserves, to
participate in drilling opportunities and to identify and enter into commercial arrangements will
depend on developing and maintaining effective working relationships with industry participants and
on our ability to select and evaluate suitable properties and to consummate transactions in a
highly competitive environment. These realities are subject to change and may impair Gran Tierras
ability to grow.
To develop our business, we will endeavor to use the business relationships of our management
to enter into strategic relationships, which may take the form of joint ventures with other private
parties or with local government bodies, or contractual arrangements with other oil and gas
companies, including those that supply equipment and other resources that we will use in our
business. We may not be able to establish these strategic relationships, or if established, we may
not be able to maintain them. In addition, the dynamics of our relationships with strategic
partners may require us to incur expenses or undertake activities we would not otherwise be
inclined to in order to fulfill our obligations to these partners or maintain our relationships. If
our strategic relationships are not established or maintained, our business prospects may be
limited, which could diminish our ability to conduct our operations.
Competition in Obtaining Rights to Explore and Develop Oil and Gas Reserves and to Market Our
Production May Impair Our Business.
The oil and gas industry is highly competitive. Other oil and gas companies will compete with
us by bidding for exploration and production licenses and other properties and services we will
need to operate our business in the countries in which we expect to operate. This competition is
increasingly intense as prices of oil and natural gas on the commodities markets have risen in
recent years. Additionally, other companies engaged in our line of business may compete with us
from time to time in obtaining capital from investors. Competitors include larger, foreign owned
companies, which, in particular, may have access to greater resources than us, may be more
successful in the recruitment and retention of qualified employees and may conduct their own
refining and petroleum marketing operations, which may give them a competitive advantage. In
addition, actual or potential competitors may be strengthened through the acquisition of additional
assets and interests.
We May Be Unable to Obtain Additional Capital that We Will Require to Implement Our Business Plan,
Which Could Restrict Our Ability to Grow.
We expect that our cash balances and cash flow from operations will be sufficient only to
provide a limited amount of working capital, and the revenues generated from our properties in
Argentina and Colombia will not alone be sufficient to fund our operations or planned growth. We
will require additional capital to continue to operate our business beyond the initial phase of our
current activities and to expand our exploration and development programs to additional properties.
We may be unable to obtain additional capital required. Furthermore, inability to obtain capital
may damage our reputation and credibility with industry participants in the event we cannot close
previously announced transactions.
Future acquisitions and future exploration, development and production activities, as well as
our general overhead expenses (including salaries, travel, office, consulting, audit and legal
costs) will require a substantial amount of additional capital and cash flow.
When
we require additional capital we plan to pursue sources of such
capital through various financing transactions or arrangements, including joint venturing of
projects, debt financing, equity financing or other means. We may not be successful in locating
suitable financing transactions in the time period required or at all, and we may not obtain the
capital we require by other means. If we do succeed in raising additional capital, the capital
received through our past private offerings to accredited investors may not be sufficient to fund
our operations going forward without obtaining additional capital financing. Furthermore, future
financings are likely to be dilutive to our stockholders, as we will most likely issue additional
shares of common
stock or other equity to investors in future financing transactions. In addition, debt and
other mezzanine financing may involve a pledge of assets and may be senior to interests of equity
holders.
We may incur substantial costs in pursuing future capital financing, including investment
banking fees, legal fees, accounting fees, securities law compliance fees, printing and
distribution expenses and other costs. We may also be required to recognize non-cash expenses in
connection with certain securities we may issue, such as convertibles and warrants, which will
adversely impact our financial condition.
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Our ability to obtain needed financing may be impaired by such factors as the capital markets
(both generally and in the oil and gas industry in particular), our status as a new enterprise with
a limited history, the location of our oil and natural gas properties in South America and prices
of oil and natural gas on the commodities markets (which will impact the amount of asset-based
financing available to us) and/or the loss of key management. Further, if oil and/or natural gas
prices on the commodities markets decrease, then our revenues will likely decrease, and such
decreased revenues may increase our requirements for capital. Some of the contractual arrangements
governing our exploration activity may require us to commit to certain capital expenditures, and we
may lose our contract rights if we do not have the required capital to fulfill these commitments.
If the amount of capital we are able to raise from financing activities, together with our revenues
from operations, is not sufficient to satisfy our capital needs (even to the extent that we reduce
our operations), we may be required to cease our operations.
If We Fail to Make the Cash Calls Required by Our Current Joint Ventures or Any Future Joint
Ventures, We May be Required to Forfeit Our Interests in Such Joint Ventures and Our Results of
Operations and Our Liquidity Would be Negatively Affected.
If we fail to make the cash calls required by our joint ventures, we may be required to
forfeit our interests in such joint ventures, which could substantially affect the implementation
of our business strategy. We were required to place $400,000 in escrow to secure future cash calls
in conjunction with the acquisition of our interest at Palmar Largo in Argentina, which funds have
now been returned to us. However, in the future we will be required to make periodic cash calls in
connection with our Palmar Largo joint venture and other joint
ventures where we are not the operator,
or we may be required to place additional funds in escrow to secure our obligations related to our
joint venture activity. If we fail to make the cash calls required in connection with the joint
ventures, whether because of our cash constraints or otherwise, we will be subject to certain penalties and eventually would be required to forfeit our
interest in the joint venture.
We May Not Be Able To Effectively Manage Our Growth, Which May Harm Our Profitability.
Our strategy envisions expanding our business. If we fail to effectively manage our growth,
our financial results could be adversely affected. Growth may place a strain on our management
systems and resources. We must continue to refine and expand our business development capabilities,
our systems and processes and our access to financing sources. As we grow, we must continue to
hire, train, supervise and manage new employees. We cannot assure you that we will be able to:
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expand our systems effectively or efficiently or in a timely manner; |
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allocate our human resources optimally; |
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identify and hire qualified employees or retain valued employees; or |
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incorporate effectively the components of any business that we may
acquire in our effort to achieve growth. |
If we are unable to manage our growth and our operations our financial results could be
adversely affected by inefficiency, which could diminish our profitability.
Our Business May Suffer If We Do Not Attract and Retain Talented Personnel.
Our success will depend in large measure on the abilities, expertise, judgment, discretion
integrity and good faith of our management and other personnel in conducting the business of Gran
Tierra. We have a small
management team consisting of Dana Coffield, our President and Chief Executive Officer, Martin
Eden, our Vice President, Finance and Chief Financial Officer, Max Wei, our Vice President,
Operations, Rafael Orunesu, our
6
President of Gran Tierra activities in Argentina, and Edgar Dyes,
our President of Gran Tierra activities in Colombia. The loss of any of these individuals or our
inability to attract suitably qualified staff could materially adversely impact our business. We
may also experience difficulties in certain jurisdictions in our efforts to obtain suitably
qualified staff and retaining staff who are willing to work in that jurisdiction. We do not
currently carry life insurance for our key employees.
Our success depends on the ability of our management and employees to interpret market and
geological data successfully and to interpret and respond to economic, market and other business
conditions in order to locate and adopt appropriate investment opportunities, monitor such
investments and ultimately, if required, successfully divest such investments. Further, our key
personnel may not continue their association or employment with Gran Tierra and we may not be able
to find replacement personnel with comparable skills. We have sought to and will continue to ensure
that management and any key employees are appropriately compensated; however, their services cannot
be guaranteed. If we are unable to attract and retain key personnel, our business may be adversely
affected.
We may not be Able to Continue as a Going Concern.
Our consolidated financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in the normal course of
business. We have a history of net losses that may continue in the future. We have
included an explanatory paragraph in Note 1 of our audited financial statements for the year ended
December 31, 2006, and unaudited financial statements for the
period ended June 30, 2007, to the effect that our dependence on equity and debt financing raises substantial
doubt about our ability to continue as a going concern. Our
accumulated deficit at June 30,
2007 was $19.8 million. Our financial statements do not include any adjustments that might be
necessary should we be unable to continue as a going concern.
Our operations must begin to provide sufficient revenues to improve our working capital
position. If we are unable to become profitable and cannot generate cash flow from our operating
activities sufficient to satisfy our current obligations and meet our capital investment
objectives, we may be required to raise additional capital or debt to fund our operations, reduce
the scope of our operations or discontinue our operations.
Risks Related to our Prior Business May Adversely Affect our Business.
Before the share exchange transaction between Goldstrike and Gran Tierra Canada, Goldstrikes
business involved mineral exploration, with a view towards development and production of mineral
assets, including ownership of 32 mineral claim units in a property in British Columbia, Canada and
the exploration of this property. We have determined not to pursue this line of business following
the share exchange, but could still be subject to claims arising from the former Goldstrike
business. These claims may arise from Goldstrikes operating activities (such as employee and labor
matters), financing and credit arrangements or other commercial transactions. While no claims are
pending and we have no actual knowledge of any threatened claims, it is possible that third parties
may seek to make claims against us based on Goldstrikes former business operations. Even if such
asserted claims were without merit and we were ultimately found to have no liability for such
claims, the defense costs and the distraction of managements attention may harm the growth and
profitability of our business. While the relevant definitive agreements executed in connection with
the share exchange provide indemnities to us for liabilities arising from the prior business
activities of Goldstrike, these indemnities may not be sufficient to fully protect us from all
costs and expenses.
7
Risks Related to Our Industry
Our Exploration for Oil and Natural Gas Is Risky and May Not Be Commercially Successful, Impairing
Our Ability to Generate Revenues from Our Operations.
Oil and natural gas exploration involves a high degree of risk. These risks are more acute in
the early stages of exploration. Our expenditures on exploration may not result in new discoveries
of oil or natural gas in commercially viable quantities. It is difficult to project the costs of
implementing an exploratory drilling program due to the inherent uncertainties of drilling in
unknown formations, the costs associated with encountering various drilling conditions, such as
over pressured zones and tools lost in the hole, and changes in drilling plans and locations as a
result of prior exploratory wells or additional seismic data and interpretations thereof. If
exploration costs exceed our estimates, or if our exploration efforts do not produce results which
meet our expectations, our exploration efforts may not be commercially successful, which could
adversely impact our ability to generate revenues from our operations.
We May Not Be Able to Develop Oil and Gas Reserves on an Economically Viable Basis, and Our
Reserves and Production May Decline as a Result.
To
the extent that we succeed in discovering oil and/or natural gas
reserves,
these reserves may not be capable of production levels we project or in sufficient quantities to
be commercially viable. On a long-term basis, our companys viability depends on our ability to
find or acquire, develop and commercially produce additional oil and gas reserves. Without the
addition of reserves through exploration, acquisition or development activities, our reserves and
production will decline over time as reserves are produced. Our future reserves will depend not
only on our ability to develop then-existing properties, but also on our ability to identify and
acquire additional suitable producing properties or prospects, to find markets for the oil and
natural gas we develop and to effectively distribute our production into our markets.
Future oil and gas exploration may involve unprofitable efforts, not only from dry wells, but
from wells that are productive but do not produce sufficient net revenues to return a profit after
drilling, operating and other costs. Completion of a well does not assure a profit on the
investment or recovery of drilling, completion and operating costs. In addition, drilling hazards
or environmental damage could greatly increase the cost of operations, and various field operating
conditions may adversely affect the production from successful wells. These conditions include
delays in obtaining governmental approvals or consents, shut-downs of connected wells resulting
from extreme weather conditions, problems in storage and distribution and adverse geological and
mechanical conditions. While we will endeavor to effectively manage these conditions, we cannot be
assured of doing so optimally, and we will not be able to eliminate them completely in any case.
Therefore, these conditions could diminish our revenue and cash flow levels and result in the
impairment of our oil and natural gas interests.
Estimates of Oil and Natural Gas Reserves that We Make May Be Inaccurate and Our Actual Revenues
May Be Lower than Our Financial Projections.
We will make estimates of oil and natural gas reserves, upon which we will base our financial
projections. We will make these reserve estimates using various assumptions, including assumptions
as to oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds. Some of these assumptions are inherently subjective, and the accuracy of our
reserve estimates relies in part on the ability of our management team, engineers and other
advisors to make accurate assumptions. Economic factors beyond our control, such as interest rates
and exchange rates, will also impact the value of our reserves. The process of estimating oil and
gas reserves is complex, and will require us to use significant decisions and assumptions in the
evaluation of available geological, geophysical, engineering and economic data for each property.
As a result, our reserve estimates will be inherently imprecise. Actual future production, oil and
natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of
recoverable oil and gas reserves may vary substantially from those we estimate. If actual
production results vary substantially from our reserve estimates, this could materially reduce our
revenues and result in the impairment of our oil and natural gas interests.
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Drilling New Wells Could Result in New Liabilities, Which Could Endanger Our Interests in Our
Properties and Assets.
There are risks associated with the drilling of oil and natural gas wells, including
encountering unexpected formations or pressures, premature declines of reservoirs, blow-outs,
craterings, sour gas releases, fires and spills. The occurrence of any of these events could
significantly reduce our revenues or cause substantial losses, impairing our future operating
results. We may become subject to liability for pollution, blow-outs or other hazards. We will
obtain insurance with respect to these hazards, but such insurance has limitations on liability
that may not be sufficient to cover the full extent of such liabilities. The payment of such
liabilities could reduce the funds available to us or could, in an extreme case, result in a total
loss of our properties and assets. Moreover, we may not be able to maintain adequate insurance in
the future at rates that are considered reasonable. Oil and natural gas production operations are
also subject to all the risks typically associated with such operations, including premature
decline of reservoirs and the invasion of water into producing formations.
Decommissioning Costs Are Unknown and May be Substantial; Unplanned Costs Could Divert Resources
from Other Projects.
We may become responsible for costs associated with abandoning and reclaiming wells,
facilities and pipelines which we use for production of oil and gas reserves. Abandonment and
reclamation of these facilities and the costs associated therewith is often referred to as
decommissioning. We have determined that we do not require a significant reserve account for
these potential costs in respect of any of our current properties or facilities at this time but if
decommissioning is required before economic depletion of our properties or if our estimates of the
costs of decommissioning exceed the value of the reserves remaining at any particular time to cover
such decommissioning costs, we may have to draw on funds from other sources to satisfy such costs.
The use of other funds to satisfy such decommissioning costs could impair our ability to focus
capital investment in other areas of our business.
Our Inability to Obtain Necessary Facilities Could Hamper Our Operations.
Oil and natural gas exploration and development activities are dependent on the availability
of drilling and related equipment, transportation, power and technical support in the particular
areas where these activities will be conducted, and our access to these facilities may be limited.
To the extent that we conduct our activities in remote areas, needed facilities may not be
proximate to our operations, which will increase our expenses. Demand for such limited equipment
and other facilities or access restrictions may affect the availability of such equipment to us and
may delay exploration and development activities. The quality and reliability of necessary
facilities may also be unpredictable and we may be required to make efforts to standardize our
facilities, which may entail unanticipated costs and delays. Shortages and/or the unavailability of
necessary equipment or other facilities will impair our activities, either by delaying our
activities, increasing our costs or otherwise.
We are not the Operator of All Our Current Joint Ventures and Therefore the Success of the Projects
Held Under Joint Ventures is Substantially Dependent On Our Joint Venture Partners.
As our company does not operate all the joint ventures we are currently involved in, we do not
have a direct control over operations. When we participate in decisions as a joint venture partner,
we must rely on the operators disclosure for all decisions. Furthermore, the operator is
responsible for the day to day operations of the joint venture including technical operations,
safety, environmental compliance, relationships with governments and vendors. As we do not have
full control over the activities of our joint ventures, our results of operations are dependent
upon the efforts of the operating partner.
We May Have Difficulty Distributing Our Production, Which Could Harm Our Financial Condition.
To sell the oil and natural gas that we are able to produce, we have to make
arrangements for storage and distribution to the market. We rely on local infrastructure and the
availability of transportation for storage and shipment of our products, but infrastructure
development and storage and transportation facilities may be insufficient for our needs at
commercially acceptable terms in the localities in which we operate. This could be particularly
problematic to the extent that our operations are conducted in remote areas that are difficult to
access, such as areas that are distant from shipping and/or pipeline facilities. In certain areas,
we may be required to rely on
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only one gathering system, trucking company or pipeline, and, if so, our ability to market our
production would be subject to their reliability and operations. These factors may affect our
ability to explore and develop properties and to store and transport our oil and gas production and
may increase our expenses.
Furthermore, future instability in one or more of the countries in which we will operate,
weather conditions or natural disasters, actions by companies doing business in those countries,
labor disputes or actions taken by the international community may impair the distribution of oil
and/or natural gas and in turn diminish our financial condition or ability to maintain our
operations.
Our Oil Sales Will Depend on a Relatively Small Group of Customers, Which Could Adversely Affect
Our Financial Results
The entire Argentine domestic refining market is small and export opportunities are limited by
available infrastructure. As a result, our oil sales in Argentina will depend on a relatively small
group of customers, and currently, on just one customer in the area of our activity in the country.
During 2006, we sold all of our production in Argentina to Refinor S.A. The lack of competition in
this market could result in unfavorable sales terms which, in turn, could adversely affect our
financial results.
Oil sales in Colombia are made to Ecopetrol, a government agency. While oil prices in Colombia
are related to international market prices, lack of competition for sales of oil may diminish
prices and depress our financial results.
Drilling Oil and Gas Wells and Production and Transportation Activity Could be Hindered by
Hurricanes, Earthquakes and Other Weather-Related Operating Risks.
We are subject to operating hazards normally associated with the exploration and production of
oil and gas, including blowouts, explosions, oil spills, cratering, pollution, earthquakes,
hurricanes, labor disruptions and fires. The occurrence of any such operating hazards could result
in substantial losses to us due to injury or loss of life and damage to or destruction of oil and
gas wells, formations, production facilities or other properties. During November and December of
2005, our operations in Argentina were negatively effected by heavy rains and flooding in Northern
Argentina. This caused trucking delays which prevented delivery of oil to the refinery for several
days.
As the majority of current oil production in Argentina is trucked to a local refinery, sales
of oil can be delayed by adverse weather and road conditions. While storage facilities are designed
to accommodate ordinary disruptions without curtailing production, delayed sales will delay
revenues and may adversely impact the companys working capital position. Furthermore, a prolonged
disruption in oil deliveries could exceed storage capacities and shut-in production, which could
have a negative impact on future production capability.
All of our current oil production in Colombia is transported by an export pipeline which
provides the only access to markets for our oil. Without other transportation alternatives, sales
of oil could be disrupted by landslides or other natural events which impact this pipeline.
Prices and Markets for Oil and Natural Gas Are Unpredictable and Tend to Fluctuate Significantly,
Which Could Reduce Profitability, Growth and the Value of Gran Tierra.
Oil and natural gas are commodities whose prices are determined based on world demand, supply
and other factors, all of which are beyond our control. World prices for oil and natural gas have
fluctuated widely in recent years. The average price for West Texas Intermediate oil in 2000 was
$30 per barrel. In 2006, it was $66 per barrel. We expect that prices will fluctuate in the future.
Price fluctuations will have a significant impact upon our revenue, the return from our reserves
and on our financial condition generally. Price fluctuations for oil and natural gas commodities
may also impact the investment market for companies engaged in the oil and gas industry. Although
during 2007 market prices for oil and natural gas have remained at high levels, these prices may
not remain at current levels. Furthermore, prices which we receive for our oil sales, while based
on international oil prices, are established by contract with purchasers with prescribed deductions
for transportation and quality differences. These differentials can change over time and have a
detrimental impact on realized prices. Future decreases in the prices of oil and natural gas may
have a material adverse effect on our financial condition, the future results of our operations and
quantities of reserves recoverable on an economic basis.
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Our Foreign Operations Involve Substantial Costs and are Subject to Certain Risks Because the Oil
and Gas Industries in the Countries in Which We Operate are Less Developed.
The oil and gas industry in South America is not as efficient or developed as the oil and gas
industry in North America. As a result, our exploration and development activities may take longer
to complete and may be more expensive than similar operations in North America. The availability of
technical expertise, specific equipment and supplies may be more limited than in North America. We
expect that such factors will subject our international operations to economic and operating risks
that may not be experienced in North American operations. In addition, oil and natural gas prices
in Argentina are effectively regulated and as a result are substantially lower than those received
in North America. Our average price for oil in Argentina in the first
half of 2007 was $38.27 per barrel, net of royalties and selling
costs, compared to
the average West Texas Intermediate price of $65 per barrel for the
period. Oil prices in Colombia
are related to international market prices, but adjustments that are defined by contract with
Ecopetrol, a government agency and the purchaser of all oil that we produce in Colombia, may cause
realized prices to be lower than those received in North America, meaning that our revenue and
gross profit may be lower compared to similar production levels in North America. Our average oil
price in Colombia in the first half of 2007 was $48.44 per barrel,
net of royalties and selling costs.
Negative Economic, Political and Regulatory Developments in Argentina, Including Export Controls
May Negatively Affect our Operations.
The Argentine economy has experienced volatility in recent decades. This volatility has
included periods of low or negative growth and variable levels of inflation. Inflation was at its
peak in the 1980s and early 1990s. In late-2001 there was a deep fiscal crisis in Argentina
involving restrictions on banking transactions, imposition of exchange controls, suspension of
payment of Argentinas public debt and abrogation of the one-to-one peg of the peso to the dollar.
For the next year, Argentina experienced contractions in economic growth, increasing inflation and
a volatile exchange rate. Currently, GDP is growing, inflation is normalized, and public finances
are strengthened. However, there is no guarantee of economic stability. Any de-stabilization may
seriously impact the economic viability of operations in the country or restrict the movement of
cash into and out of the country, which would impair current activity and constrain growth in the
country.
On June 3, 2002, the Argentine government issued a resolution authorizing the Energy
Secretariat to limit the amount of crude oil that companies can export. The restriction was to be
in place from June 2002 to September 2002. However, on June 14, 2002, the government agreed to
abandon the limit on crude export volumes in exchange for a guarantee from oil companies that
domestic demand will be supplied. Oil companies also agreed not to raise natural gas and related
prices to residential customers during the winter months and to maintain gasoline, natural gas and
oil prices in line with those in other South American countries. Any future regulations that limit
the amount of oil and gas that we could sell or any regulations that limit price increases in
Argentina and elsewhere could severely limit the amount of our revenue and affect our results of
operations.
The United States Government May Impose Economic or Trade Sanctions on Colombia That Could Result
In A Significant Loss To Us.
Colombia is among several nations whose progress in stemming the production and transit of illegal
drugs is subject to annual certification by the President of the United States. Although Colombia
has received a 2006 certification, there can be no assurance that, in the future, Colombia will
receive certification or a national interest waiver. The failure to receive certification or a
national interest waiver may result in any of the following:
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all bilateral aid, except anti-narcotics and humanitarian aid, would be suspended, |
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the Export-Import Bank of the United States and the Overseas
Private Investment Corporation would not approve financing for new
projects in Colombia, |
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United States representatives at multilateral lending institutions
would be required to vote against all loan requests from Colombia , although such votes would not constitute vetoes, and |
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the President of the United States and Congress would retain the
right to apply future trade sanctions. |
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Each of these consequences could result in adverse economic consequences in Colombia and could
further heighten the political and economic risks associated with our operations there. Any changes
in the holders of significant government offices could have adverse consequences on our
relationship with the Colombian national oil company and the Colombian governments ability to
control guerrilla activities and could exacerbate the factors relating to our foreign operations.
Any sanctions imposed on Colombia by the United States government could threaten our ability to
obtain necessary financing to develop the Colombian properties or cause Colombia to retaliate
against us, including by nationalizing our Argosy assets. Accordingly, the imposition of the
foregoing economic and trade sanctions on Colombia would likely result in a substantial loss and a
decrease in the price of our common stock. There can be no assurance that the United States will
not impose sanctions on Colombia in the future, nor can we predict the effect in Colombia that
these sanctions might cause.
Guerrilla Activity in Colombia Could Disrupt or Delay Our Operations, and We Are Concerned About
Safeguarding Our Operations and Personnel in Colombia.
A 40-year armed conflict between government forces and anti-government insurgent groups and
illegal paramilitary groups - both funded by the drug trade - continues in Colombia. Insurgents
continue to attack civilians and violent guerilla activity continues in many parts of the country.
We, through our acquisition of Argosy Energy International, have interests in three regions of
Colombia - in the Middle Magdalena, Llanos and Putumayo regions. The
Putumayo region has been prone
to guerilla activity in the past. In 1989, Argosys facilities in one field were attacked by
guerillas and operations were briefly disrupted. Pipelines have also been targets, including the
Trans-Andean export pipeline which transports oil from the Putumayo region.
There can be no assurance that continuing attempts to reduce or prevent guerilla activity will
be successful or that guerilla activity will not disrupt our operations in the future. There can
also be no assurance that we can maintain the safety of our operations and personnel in Colombia or
that this violence will not affect our operations in the future. Continued or heightened security
concerns in Colombia could also result in a significant loss to us.
Increases in Our Operating Expenses will Impact Our Operating Results and Financial Condition.
Exploration, development, production, marketing (including distribution costs) and regulatory
compliance costs (including taxes) will substantially impact the net revenues we derive from the
oil and gas that we produce. These costs are subject to fluctuations and variation in different
locales in which we will operate, and we may not be able to predict or control these costs. If
these costs exceed our expectations, this may adversely affect our results of operations. In
addition, we may not be able to earn net revenue at our predicted levels, which may impact our
ability to satisfy our obligations.
Penalties We May Incur Could Impair Our Business.
Our exploration, development, production and marketing operations are regulated extensively
under foreign, federal, state and local laws and regulations. Under these laws and regulations, we
could be held liable for personal injuries, property damage, site clean-up and restoration
obligations or costs and other damages and liabilities. We may also be required to take corrective
actions, such as installing additional safety or environmental equipment, which could require us to
make significant capital expenditures. Failure to comply with these laws and regulations may also
result in the suspension or termination of our operations and subject us to administrative, civil
and criminal penalties, including the assessment of natural resource damages. We could be required
to indemnify our employees in connection with any expenses or liabilities that they may incur
individually in connection with regulatory action against them. As a result of these laws and
regulations, our future business prospects could deteriorate and our profitability could be
impaired by costs of compliance, remedy or indemnification of our employees, reducing our
profitability.
Environmental Risks May Adversely Affect Our Business.
All phases of the oil and natural gas business present environmental risks and hazards and are
subject to environmental regulation pursuant to a variety of international conventions and federal,
provincial and municipal
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laws and regulations. Environmental legislation provides for, among other things, restrictions
and prohibitions on spills, releases or emissions of various substances produced in association
with oil and gas operations. The legislation also requires that wells and facility sites be
operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory
authorities. Compliance with such legislation can require significant expenditures and a breach may
result in the imposition of fines and penalties, some of which may be material. Environmental
legislation is evolving in a manner we expect may result in stricter standards and enforcement,
larger fines and liability and potentially increased capital expenditures and operating costs. The
discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to
liabilities to foreign governments and third parties and may require us to incur costs to remedy
such discharge. The application of environmental laws to our business may cause us to curtail our
production or increase the costs of our production, development or exploration activities.
Our Insurance May Be Inadequate to Cover Liabilities We May Incur.
Our involvement in the exploration for and development of oil and natural gas properties may
result in our becoming subject to liability for pollution, blow-outs, property damage, personal
injury or other hazards. Although we will obtain insurance in accordance with industry standards to
address such risks, such insurance has limitations on liability that may not be sufficient to cover
the full extent of such liabilities. In addition, such risks may not, in all circumstances be
insurable or, in certain circumstances, we may choose not to obtain insurance to protect against
specific risks due to the high premiums associated with such insurance or for other reasons. The
payment of such uninsured liabilities would reduce the funds available to us. If we suffer a
significant event or occurrence that is not fully insured, or if the insurer of such event is not
solvent, we could be required to divert funds from capital investment or other uses towards
covering our liability for such events.
Our Business is Subject to Local Legal, Political and Economic Factors Which are Beyond Our
Control, Which Could Impair Our Ability to Expand Our Operations or Operate Profitably.
We expect to operate our business in Argentina, Colombia and Peru, and to expand our
operations into other countries in the world. Exploration and production operations in foreign
countries are subject to legal, political and economic uncertainties, including terrorism, military
repression, interference with private contract rights (such as privatization), extreme fluctuations
in currency exchange rates, high rates of inflation, exchange controls and other laws or policies
affecting environmental issues (including land use and water use), workplace safety, foreign
investment, foreign trade, investment or taxation, as well as restrictions imposed on the oil and
natural gas industry, such as restrictions on production, price controls and export controls.
Central and South America have a history of political and economic instability. This instability
could result in new governments or the adoption of new policies, laws or regulations that might
assume a substantially more hostile attitude toward foreign investment. In an extreme case, such a
change could result in termination of contract rights and expropriation of foreign-owned assets.
Any changes in oil and gas or investment regulations and policies or a shift in political attitudes
in Argentina, Colombia, Peru or other countries in which we intend to operate are beyond our
control and may significantly hamper our ability to expand our operations or operate our business
at a profit.
For instance, changes in laws in the jurisdiction in which we operate or expand into with the
effect of favoring local enterprises, changes in political views regarding the exploitation of
natural resources and economic pressures may make it more difficult for us to negotiate agreements
on favorable terms, obtain required licenses, comply with regulations or effectively adapt to
adverse economic changes, such as increased taxes, higher costs, inflationary pressure and currency
fluctuations.
Local Legal and Regulatory Systems in Which We Operate May Create Uncertainty Regarding Our Rights
and Operating Activities, Which May Harm Our Ability to do Business.
We are a company organized under the laws of the State of Nevada and are subject to United
States laws and regulations. The jurisdictions in which we intend to operate our exploration,
development and production activities may have different or less developed legal systems than the
United States, which may result in risks such as:
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effective legal redress in the courts of such jurisdictions,
whether in respect of a breach of law or regulation, or, in an
ownership dispute, being more difficult to obtain; |
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a higher degree of discretion on the part of governmental authorities; |
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the lack of judicial or administrative guidance on interpreting applicable rules and regulations; |
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inconsistencies or conflicts between and within various laws,
regulations, decrees, orders and resolutions; and |
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relative inexperience of the judiciary and courts in such matters. |
In certain jurisdictions the commitment of local business people, government officials and agencies
and the judicial system to abide by legal requirements and negotiated agreements may be more
uncertain, creating particular concerns with respect to licenses and agreements for business. These
licenses and agreements may be susceptible to revision or cancellation and legal redress may be
uncertain or delayed. Property right transfers, joint ventures, licenses, license applications or
other legal arrangements pursuant to which we operate may be adversely affected by the actions of
government authorities and the effectiveness of and enforcement of our rights under such
arrangements in these jurisdictions may be impaired.
We are Required to Obtain Licenses and Permits to Conduct Our Business and Failure to Obtain These
Licenses Could Cause Significant Delays and Expenses That Could Materially Impact Our Business.
We are subject to licensing and permitting requirements relating to drilling for oil and
natural gas. We cannot assure you that we will be able to obtain, sustain or renew such licenses.
We cannot assure you that regulations and policies relating to these licenses and permits will not
change or be implemented in a way that we do not currently anticipate. These licenses and permits
are subject to numerous requirements, including compliance with the environmental regulations of
the local governments. As we are not the operator of all the joint ventures we are currently
involved in, we may rely on the operator to obtain all necessary permits and licenses. If we fail
to comply with these requirements, we could be prevented from drilling for oil and natural gas, and
we could be subject to civil or criminal liability or fines. Revocation or suspension of our
environmental and operating permits could have a material adverse effect on our business, financial
condition and results of operations.
Challenges to Our Properties May Impact Our Financial Condition.
Title to oil and natural gas interests is often not capable of conclusive determination
without incurring substantial expense. While we intend to make appropriate inquiries into the title
of properties and other development rights we acquire, title defects may exist. In addition, we may
be unable to obtain adequate insurance for title defects, on a commercially reasonable basis or at
all. If title defects do exist, it is possible that we may lose all or a portion of our right,
title and interest in and to the properties to which the title defects relate.
Furthermore, applicable governments may revoke or unfavorably alter the conditions of
exploration and development authorizations that we procure, or third parties may challenge any
exploration and development authorizations we procure. Such rights or additional rights we apply
for may not be granted or renewed on terms satisfactory to us.
If our property rights are reduced, whether by governmental action or third party challenges,
our ability to conduct our exploration, development and production may be impaired.
Foreign Currency Exchange Rate Fluctuations May Affect Our Financial Results.
We expect to sell our oil and natural gas production under agreements that will be denominated
in United States dollars and foreign currencies. Many of the operational and other expenses we
incur will be paid in the local currency of the country where we perform our operations. Our
production is primarily invoiced in United States dollars, but payment is also made in Argentine
and Colombian pesos, at the then-current exchange rate. As a result, we are exposed to translation
risk when local currency financial statements are translated to United States dollars, our
companys functional currency. Since we began operating in Argentina (September 1, 2005), the rate
of exchange between the Argentine peso and US dollar has varied
between 2.91 pesos to one US dollar
to 3.13 pesos to the US dollar, a fluctuation
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of approximately 5%. Exchange rates between the
Colombian peso and US dollar have
varied between 1,951 pesos to one US dollar to 2,640 pesos to one US dollar since September 1,
2005, a fluctuation of approximately 25%. As currency exchange rates fluctuate, translation of the
statements of income of international businesses into United States dollars will affect
comparability of revenues and expenses between periods.
Exchange Controls and New Taxes Could Materially Affect our Ability to Fund Our Operations and
Realize Profits from Our Foreign Operations.
Foreign operations may require funding if their cash requirements exceed operating cash flow.
To the extent that funding is required, there may be exchange controls limiting such funding or
adverse tax consequences associated with such funding. In addition, taxes and exchange controls may
affect the dividends that we receive from foreign subsidiaries.
Exchange controls may prevent us from transferring funds abroad. For example, the Argentine
government has imposed a number of monetary and currency exchange control measures that include
restrictions on the free disposition of funds deposited with banks and tight restrictions on
transferring funds abroad, with certain exceptions for transfers related to foreign trade and other
authorized transactions approved by the Argentine Central Bank. We cannot assure you that the
Central Bank will not require prior authorization or will grant such authorization for our
Argentine subsidiaries to make dividend payments to us and we cannot assure you that there will not
be a tax imposed with respect to the expatriation of the proceeds from our foreign subsidiaries.
We Will Rely on Technology to Conduct Our Business and Our Technology Could Become Ineffective Or
Obsolete.
We rely on technology, including geographic and seismic analysis techniques and economic
models, to develop our reserve estimates and to guide our exploration and development and
production activities. We will be required to continually enhance and update our technology to
maintain its efficacy and to avoid obsolescence. The costs of doing so may be substantial, and may
be higher than the costs that we anticipate for technology maintenance and development. If we are
unable to maintain the efficacy of our technology, our ability to manage our business and to
compete may be impaired. Further, even if we are able to maintain technical effectiveness, our
technology may not be the most efficient means of reaching our objectives, in which case we may
incur higher operating costs than we would were our technology more efficient.
Risks Related to Our Common Stock
The Market Price of Our Common Stock May Be Highly Volatile and Subject to Wide Fluctuations.
The market price of our common stock may be highly volatile and could be subject to wide
fluctuations in
response to a number of factors that are beyond our control, including:
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dilution caused by our issuance of additional shares of common
stock and other forms of equity securities, which we expect to
make in connection with future capital financings to fund our
operations and growth, to attract and retain valuable personnel
and in connection with future strategic partnerships with other
companies; |
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announcements of new acquisitions, reserve discoveries or other business initiatives by our competitors; |
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fluctuations in revenue from our oil and natural gas business as new reserves come to market; |
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changes in the market for oil and natural gas commodities and/or in the capital markets generally; |
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changes in the demand for oil and natural gas, including changes
resulting from the introduction or expansion of alternative fuels;
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changes in the social, political and/or legal climate in the regions in which we will operate. |
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In addition, the market price of our common stock could be subject to wide fluctuations in response
to:
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quarterly variations in our revenues and operating expenses; |
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changes in the valuation of similarly situated companies, both in our industry and in other industries; |
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changes in analysts estimates affecting our company, our competitors and/or our industry; |
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changes in the accounting methods used in or otherwise affecting our industry; |
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additions and departures of key personnel; |
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announcements of technological innovations or new products
available to the oil and natural gas industry; |
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announcements by relevant governments pertaining to incentives for
alternative energy development programs; |
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fluctuations in interest rates, exchange rates and the availability of capital in the capital markets; and |
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significant sales of our common stock, including sales by the
investors following registration of the shares of common stock
under the registration statement of which this prospectus is a
part and/or future investors in future offerings we expect to make
to raise additional capital. |
These and other factors are largely beyond our control, and the impact of these risks,
singularly or in the aggregate, may result in material adverse changes to the market price of our
common stock and/or our results of operation and financial condition.
Our Operating Results May Fluctuate Significantly, and These Fluctuations May Cause Our Stock Price
to Decline.
Our operating results will likely vary in the future primarily from fluctuations in our
revenues and operating expenses, including the coming to market of oil and natural gas reserves
that we are able to develop, expenses that we incur, the prices of oil and natural gas in the
commodities markets and other factors. If our results of operations do not meet the expectations of
current or potential investors, the price of our common stock may decline.
We Do Not Expect to Pay Dividends In the Foreseeable Future.
We do not intend to declare dividends for the foreseeable future, as we anticipate that we
will reinvest any future earnings in the development and growth of our business. Therefore,
investors will not receive any funds unless they sell their common stock, and stockholders may be
unable to sell their shares on favorable terms or at all. Investors cannot be assured of a positive
return on investment or that they will not lose the entire amount of their investment in our common
stock.
Maintaining and improving our financial controls may strain our resources and divert managements
attention, and if we are not able to report that we have effective internal controls our stock
price may suffer.
We are subject to the requirements of the Securities Exchange Act of 1934, or the Exchange Act,
including the requirements of the Sarbanes-Oxley Act of 2002. The requirements of these rules and
regulations have increased, and we expect will continue to increase, our legal and financial
compliance costs, make some activities more difficult, time-consuming or costly and may also place
undue strain on our personnel, systems and resources. The Sarbanes-Oxley Act requires, among other
things, that we maintain effective disclosure controls and procedures and internal control over
financial reporting. This can be difficult to do. As a result of this and similar activities,
managements attention may be diverted from other business concerns, which could have a material
adverse effect on our business, financial condition and results of operations. In addition, if we
are unable to report in our Annual Report on Form 10-K for 2007 that we maintain effective internal
control over financial reporting, investor confidence in our management may decrease, which could
have an adverse effect on our stock price.
16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities
Exchange Act of 1934, as amended (the Exchange Act). This prospectus includes statements
regarding our plans, goals, strategies, intent, beliefs or current expectations. These statements
are expressed in good faith and based upon a reasonable basis when made, but there can be no
assurance that these expectations will be achieved or accomplished. These forward looking
statements can be identified by the use of terms and phrases such as believe, plan, intend,
anticipate, target, estimate, expect, and the like, and/or future-tense or conditional
constructions may, could, should, etc. Items contemplating or making assumptions about,
actual or potential future sales, market size, collaborations, and trends or operating results also
constitute such forward-looking statements.
Although forward-looking statements in this prospectus reflect the good faith judgment of
our management, forward-looking statements are inherently subject to known and unknown risks,
business, economic and other risks and uncertainties that may cause actual results to be materially
different from those discussed in these forward-looking statements. Readers are urged not to place
undue reliance on these forward-looking statements, which speak only as of the date of this
prospectus. We assume no obligation to update any forward-looking statements in order to reflect
any event or circumstance that may arise after the date of this prospectus, other than as may be
required by applicable law or regulation. Readers are urged to carefully review and consider the
various disclosures made by us in our reports filed with the Securities and Exchange Commission
which attempt to advise interested parties of the risks and factors that may affect our business,
financial condition, results of operation and cash flows. If one or more of these risks or
uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may
vary materially from those expected or projected.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We currently
intend to retain any future earnings to fund the development and expansion of our business, and
therefore we do not anticipate paying cash dividends on our common stock in the foreseeable
future. Any future determination to pay dividends will be at the discretion of our board of
directors. In addition, under the terms of our credit facility with Standard Bank Plc, we are
required to obtain the approval of the Bank for any dividend payments made by us exceeding $2
million in any fiscal year.
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling stockholders of our common
stock. We will receive approximately
$3,067,000 if three of the selling stockholders exercise their
warrants in full. The warrant holders may exercise their warrants at any time until their
expiration, as further described in the Description of Securities. Because the warrant holders
may exercise the warrants in their own discretion, we cannot plan on specific uses of proceeds
beyond application of proceeds to general corporate purposes. These proceeds will be used for
general corporate purposes and capital expenditures. We will bear the expenses in
connection with the registration of the common stock being offered hereby by the selling
stockholders.
PRICE RANGE OF COMMON STOCK
Our common stock was first cleared for quotation on the OTC bulletin board on November 11,
2005 and has been trading since that time under the symbol GTRE.OB.
17
As
of September 15, 2007 there were approximately
434 holders of record of shares of our common
stock (including holders of exchangeable shares).
On
November 8, 2007, the last reported sales price of our shares on the OTC bulletin board
was $1.75. For the periods indicated, the following table sets forth the high and low bid
prices per share of common stock. These prices represent inter-dealer quotations without retail
markup, markdown, or commission and may not necessarily represent actual transactions.
|
|
|
|
|
|
|
|
|
|
|
High |
|
Low |
Fourth
Quarter (through November 8, 2007) |
|
$ |
1.87 |
|
|
$ |
1.39 |
|
Third
Quarter |
|
$ |
2.16 |
|
|
$ |
1.31 |
|
Second
Quarter |
|
$ |
1.49 |
|
|
$ |
0.90 |
|
First Quarter 2007 |
|
$ |
1.64 |
|
|
$ |
0.88 |
|
Fourth Quarter 2006 |
|
$ |
1.75 |
|
|
$ |
1.10 |
|
Third Quarter 2006 |
|
$ |
3.67 |
|
|
$ |
1.47 |
|
Second Quarter 2006 |
|
$ |
5.01 |
|
|
$ |
2.96 |
|
First Quarter 2006 |
|
$ |
5.95 |
|
|
$ |
3.02 |
|
November 11 through Dec 2005 |
|
$ |
2.80 |
|
|
$ |
1.50 |
|
As
of September 15, 2007, there are
94,863,576 shares of common stock issued and outstanding,
which number includes shares of common stock issuable upon exchange of the exchangeable shares
of Goldstrike Exchange Co. issued to former holders of Gran Tierra Canadas common stock.
Equity Compensation Plan
Securities authorized for issuance under equity compensation plans as of December 31, 2006
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Weighted |
|
Number of securities |
|
|
securities to be issued upon |
|
average exercise price of |
|
remaining available for future |
Plan category |
|
exercise of options |
|
outstanding options |
|
issuance |
|
Equity compensation
plans approved by
security holders |
|
|
1,520,000 |
|
|
$ |
1.12 |
|
|
|
480,000 |
|
Equity compensation
plans not approved by
security holders |
|
|
1,180,000 |
|
|
$ |
1.27 |
|
|
|
|
|
|
Total |
|
|
2,700,000 |
|
|
|
|
|
|
|
480,000 |
|
|
The only equity compensation plan approved by our stockholders is our 2005 Equity Incentive
Plan, under which our board of directors is authorized to issue options or other rights to acquire
up to 2,000,000 shares of our common stock. On November 8, 2006, our board of directors granted
options to acquire 1,180,000 shares of common stock at an exercise price of $1.27 per share, which
options cannot be exercised, and will be rescinded, if our stockholders do not approve an increase
in the number of shares authorized under the 2005 Equity Incentive Plan sufficient to permit the
issuance of the shares issuable upon exercise of these additional stock options. These stock
options are reflected in the table above as not being approved by security holders. In addition,
in 2007 through May 2, 2007, the Board granted options to
acquire an additional 850,000 shares of
common stock at a weighted average exercise price of $1.25 per share, which options cannot be
exercised, and will be rescinded, if our stockholders do not approve an increase in the number of
shares authorized under the 2005 Equity Incentive Plan sufficient to permit the issuance of the
shares issuable upon exercise of these additional stock options.
18
SELECTED FINANCIAL DATA
The following selected summary consolidated financial data should be read in conjunction
with Managements Discussion and Analysis of Financial Condition and Results of Operations and
audited financial statements as at and for the years ended December
31, 2005 and 2006, and unaudited financial statements as at and for
the six months ended June 30, 2006 and 2007, included in this prospectus. Our results of operations in 2005 are
for the period of incorporation, which was January 26, 2005, to December 31, 2005. All dollar
amounts are in US dollars.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
Six Months ended June 30, |
|
|
2005 |
|
2006 |
|
2006 |
|
2007 |
|
|
|
(Audited) |
|
(Unaudited) |
Results of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil sales |
|
$ |
946,098 |
|
|
$ |
11,645,553 |
|
|
$ |
3,072,394 |
|
|
$ |
7,899,720 |
|
Natural gas sales |
|
|
113,199 |
|
|
|
75,488 |
|
|
|
67,219 |
|
|
|
35,494 |
|
Interest |
|
|
|
|
|
|
351,872 |
|
|
|
|
|
|
|
331,350 |
|
|
Total revenues |
|
|
1,059,297 |
|
|
|
12,072,913 |
|
|
|
3,139,613 |
|
|
|
8,266,564 |
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
395,287 |
|
|
|
4,233,470 |
|
|
|
1,442,620 |
|
|
|
4,105,980 |
|
Depletion, depreciation and accretion |
|
|
462,119 |
|
|
|
4,088,437 |
|
|
|
874,465 |
|
|
|
4,700,898 |
|
General and administrative |
|
|
2,482,070 |
|
|
|
6,998,805 |
|
|
|
2,471,583 |
|
|
|
4,618,855 |
|
Liquidated damages |
|
|
|
|
|
|
1,527,988 |
|
|
|
|
|
|
|
7,366,949 |
|
Derivative
financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
676,984 |
|
Foreign
exchange (gain) loss |
|
|
(31,271 |
) |
|
|
370,538 |
|
|
|
3,842 |
|
|
|
(6,134 |
) |
|
Total expenses |
|
|
3,308,205 |
|
|
|
17,219,237 |
|
|
|
4,792,510 |
|
|
|
21,463,532 |
|
|
Loss before income tax |
|
|
(2,248,908 |
) |
|
|
(5,146,324 |
) |
|
|
(1,652,897 |
) |
|
|
(13,196,968 |
) |
Income tax |
|
|
29,228 |
|
|
|
(677,380 |
) |
|
|
(137,783 |
) |
|
|
1,474,700 |
|
|
Net loss |
|
$ |
(2,219,680 |
) |
|
$ |
(5,823,704 |
) |
|
$ |
(1,790,680 |
) |
|
$ |
(11,722,268 |
) |
|
Net loss per common share basic and diluted |
|
$ |
(0.16 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.12 |
) |
|
Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(1,876,638 |
) |
|
$ |
(829,618 |
) |
|
$ |
(1,066,059 |
) |
|
$ |
1,264,438 |
|
Investing activities |
|
|
(9,108,022 |
) |
|
|
(46,672,884 |
) |
|
|
(51,024,380 |
) |
|
|
(15,523,039 |
) |
Financing activities |
|
|
13,206,116 |
|
|
|
69,381,827 |
|
|
|
71,132,759 |
|
|
|
|
|
|
Increase
(decrease) in cash |
|
$ |
2,221,456 |
|
|
$ |
21,879,325 |
|
|
$ |
19,042,320 |
|
|
$ |
(14,258,601 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
June 30, |
|
|
2005 |
|
2006 |
|
2006 |
|
2007 |
|
Financial Position |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,221,456 |
|
|
$ |
24,100,780 |
|
|
$ |
21,263,776 |
|
|
$ |
9,842,179 |
|
Working capital |
|
|
2,764,643 |
|
|
|
14,274,644 |
|
|
|
32,911,238 |
|
|
|
7,153,502 |
|
Total assets |
|
|
12,371,131 |
|
|
|
105,910,809 |
|
|
|
103,223,503 |
|
|
|
98,764,451 |
|
Deferred taxes |
|
|
|
|
|
|
9,875,657 |
|
|
|
15,238,912 |
|
|
|
11,373,307 |
|
Other long-term Liabilities |
|
|
67,732 |
|
|
|
740,681 |
|
|
|
141,248 |
|
|
|
2,037,003 |
|
Shareholders equity |
|
|
11,039,347 |
|
|
|
76,194,779 |
|
|
|
80,527,443 |
|
|
|
72,202,894 |
|
We made our initial acquisition of oil and gas producing and non-producing properties in
Argentina in September 2005 for a total purchase price of approximately $7 million. Prior to that
time we had no revenues. In June 2006, we acquired our Argosy assets for consideration of $37.5
million cash, 870,647 shares of our common stock and overriding and net profit interests in certain
assets valued at $1 million. See Business for a description of these acquisitions.
19
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be
read in conjunction with our consolidated financial statements and notes thereto. Except for the
historical information contained herein, the matters discussed below are forward-looking statements
that involve risks and uncertainties, including, among others, the risks and uncertainties
discussed below.
Overview
We are an independent international energy company involved in oil and natural gas
exploration, development and production. We plan to continually increase our oil and natural gas
reserves through a balanced strategy of exploration drilling, development and acquisitions in South
America. Initial countries of interest are Argentina, Colombia and Peru.
We took our current form on November 10, 2005 when the former Gran Tierra Energy Inc, a
privately held corporation in Alberta (Gran Tierra Canada), was acquired by an indirect
subsidiary of Goldstrike Inc, a Nevada corporation, which was publicly traded on the OTC Bulletin
Board. Goldstrike adopted the assets, management, business operations, business plan and name of
Gran Tierra Canada. The predecessor company in the transaction was the former Gran Tierra Canada;
the financial information of the former Goldstrike was eliminated at consolidation. This
transaction is accounted for as a reverse takeover of Goldstrike Inc. by Gran Tierra Canada.
Prior to September 1, 2005, we had no oil and gas interests or properties. In September 2005
and during 2006 we acquired oil and gas interests and properties in Argentina, Colombia and Peru.
On September 1, 2005, we acquired a 14% non-operating interest in the Palmar Largo joint
venture in Argentina, involving several producing fields. At the same time, we acquired interests
in two minor properties in Argentina, comprising a 50% interest in the Nacatimbay block, which
produces minor volumes of natural gas and associated liquids from a single well, and a 50% interest
in the Ipaguazu block, a non-producing property. The total cost of these acquisitions was
approximately $7 million.
Effective June 30, 2006, we closed a farm-in arrangement with Golden Oil Corporation whereby
we purchased 50% of the El Vinalar producing block in Argentina for $950,000. We also agreed to pay
100% of the first $2.7 million in costs of a sidetrack well related to this farm-in agreement.
On February 15, 2006, we made an offer to acquire the interests of CGC in eight properties in
Argentina. On November 2, 2006, we closed the purchase of interests in four properties for a total
purchase price of $2.1 million. The assets purchased include a 93.18% participation interest in the
Valle Morado block, a 100% interest in the Santa Victoria block and the remaining 50% interests in
the Nacatimbay and Ipaguazu blocks.
On December 1, 2006, we closed the purchase of interests in two other properties from CGC,
including a 100% interest in the El Chivil block and a 100% participation interest in the Surubi
block, each located in the Noroeste Basin of Argentina, for a total purchase price of $2.5 million.
We also purchased the remaining 25% minority interest in each property from the joint venture
partner for a total purchase price of $280,000.
The total purchase price in 2006 for the acquisition of CGCs interests in all six properties
was $4.6 million. Post-closing adjustments, which reflect original values assigned to the
properties, amended terms, revenues and costs from the effective date of January 1, 2006, were
approximately $3.8 million which was paid in January 2007.
We began operations in Colombia on June 20, 2006 through the acquisition of Argosy Energy
International L.P. (Argosy). The Argosy assets consist of interests in a portfolio of producing
and non-producing assets in Colombia. We entered into a Securities Purchase Agreement dated May 25,
2006 with Crosby Capital LLC to acquire all of the limited partnership interests of Argosy and all
of the issued and outstanding capital stock of Argosy Energy Corp. On June 20, 2006 we closed the
Argosy acquisition and paid consideration to Crosby consisting of $37.5 million cash, 870,647
shares of our common stock and overriding and net profit interests in certain of Argosys assets
valued at $1 million. The value of the overriding and net profit interests was based on present
value of expected future cash flows.
20
We signed a License Contract with PeruPetro S.A. for the Exploration and Exploitation of
Hydrocarbons covering Block 122 in Peru on June 8, 2006. Terms of the License define a seven-year
exploration term with four periods, each with minimum work obligations. The minimum commitment for
the first work period, which is mandatory, is $0.5 million. The potential commitment over the
seven-year period, at our option, is $5.0 million and includes technical studies, seismic
acquisition and the drilling of one exploration well. The License Contract defines an exploitation
term of thirty years for commercial discoveries of oil. Block 122 covers 1.2 million acres. Final
ratification by the government of Peru occurred on November 3, 2006. A second License Contract for
the adjacent Block 128 was subsequently awarded and ratified on December 12, 2006. This second
License encompasses 2.2 million acres and has the same terms as that for Block 122.
Acquisitions of properties in Colombia and Argentina were funded through a series of private placements of our
securities that occurred between September 2005 and February 2006 and an additional private placement that
occurred in June 2006.
In the fourth quarter of 2005 and the first quarter of 2006 we sold 15 million units of our
securities for gross proceeds of $12 million, less issue costs of $800,000, for net proceeds of
$11.2 million. Each unit consisted of one share of common stock and one warrant to purchase one
half of a common share for five years at an exercise price of $1.25 per whole share.
In June, 2006 we sold 50,000,000 units of our securities for total proceeds of $75,000,000,
less issue costs of $6,306,699, for net proceeds of $68,693,301. Each unit consisted of one share
of common stock and one warrant to purchase one half a common share for five years at an exercise
price of $1.75 per whole share.
During the second quarter of 2007, investors holding 948,853 units, comprising 948,853 common shares and
warrants to purchase 474,427 common shares, exercised their right to have us return to them their purchase price for
the securities. The net proceeds from the sale of the securities
amounting to $1,280,951, held in escrow, were
refunded to the investors to complete this transaction during June,
2007, and the securities were cancelled.
The shares of common stock and warrants to purchase common shares issued in 2005 and 2006 have
registration rights associated with their issuance pursuant to which we agreed to register for
resale the shares and warrants. In the event that the registration
statements were not declared
effective by the SEC by specified dates, we were required to pay liquidated damages to the
purchasers of the shares and warrants.
The holders of units purchased in the 2005 and first quarter of 2006 offering were paid their full liquidated damages
in cash in the amount of $269,923 in December 2006.
On June 27, 2007, we agreed to amend the terms of the warrants issued in the June 2006 offering by reducing the
exercise price of the warrants to $1.05 and extending the life of the warrants by one year. In doing so, the investors
waived their rights to receive an aggregate cash payment of
approximately $8,625,000 for the liquidated damages accrued.
Effective February 28, 2007, we secured a $50 million credit facility with Standard Bank Plc. The credit facility has
a three-year term and an initial borrowing base of $7 million. Funds available under our bank credit facility are
limited to the amount of the borrowing base, as determined by the bank semi-annually. No amounts have been drawn-down under the facility.
21
Our ability to continue as a going concern is dependent upon obtaining the necessary financing
to acquire oil and natural gas interests and generating profitable operations from our oil and
natural gas interests in the future. Our financial statements as at and for the year ended December 31, 2006 and as
at and for the six month period ended June 30, 2007 have been prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of business. We incurred a
net loss of $5,823,704 for the year ended December 31, 2006, and, as at December 31, 2006, we had a
deficit of $8,043,384. We incurred a net loss of $11,722,268 for the six months ended June 30, 2007, and, as at June 30,
2007, we had a deficit of $19,765,652. We expect to incur substantial expenditures to further our capital
investment programs and our cash flow from operating activities and current cash balances may not
be sufficient to satisfy our current obligations and meet our capital investment objectives. We intend to explore opportunities as they arise, including raising additional capital, pursuing
acquisitions of assets or other companies or a merger with another company, and selling or
co-partnering development of some of our assets, to achieve our financing needs. We may not be
successful in such pursuits.
To address our ability to continue as a going concern, we have raised additional capital
through the sale and issuance of common shares, and may do so again in the future. We plan to
expand our portfolio of production, development, step-out and exploration opportunities using
additional equity financing, cash provided from future operating activities, and the bank credit
facility. Additional equity financing may not be available to us on attractive terms, if at all.
Further, funds available under our bank credit facility are limited to the amount of the borrowing
base, as determined by the bank semi-annually, up to a maximum of $50 million and provided that we are able to make the required representations to our lender.
We currently generate the majority of our revenue and cash flow from the production and sale
of crude oil in Argentina and Colombia. The selling prices for our crude oil production are based
on international oil prices, which historically have been volatile. In 2007, our production may be
subject to natural production declines, and our revenues may be impacted by international oil
prices, which are uncertain. Results from operations may also be affected by drilling efforts and
planned remedial work programs. Our drilling and work plans for 2007 are expected to be funded from
available cash, anticipated cash flow from operations, and a bank credit facility. Oil price
declines combined with unexpected costs may require additional equity and/or debt financing during
the year. Increases in the borrowing base under our credit facility are dependent on our success in
increasing oil and gas reserves and dependent on future oil prices.
Our
financial results for 2005 and 2006 and the first half of 2007 are principally impacted by acquisitions of oil and
gas interests in Argentina and Colombia in the third quarter of 2005 and the second and fourth
quarters of 2006, as described above, which affected our results of operations. Our financial
condition has also been affected by the equity financings described above.
The operating results for 2006 include a full year of activities at Palmar Largo, two months
at Nacatimbay before production was suspended on March 1 and two months after production was
reinstated on November 1, six months of activities at El Vinalar beginning July 1, 2006 and one
month of activities at Chivil, commencing December 1, and the Argosy acquisitions in Colombia from
June 21, 2006. The operating results and financial position for 2005 reflect our incorporation on
January 26, 2005 and the commencement of oil and gas operations in Argentina on September 1, 2005.
Results of Operations for the Six Months ended June 30, 2007 and 2006
The comparison of the financial and operational results for the six months ended June 30, 2007 to
the same periods in 2006, is impacted primarily by the increases that occurred to our operational
assets due to properties acquired during 2006.
In Argentina, we initially held a 14% working interest (WI) in Palmar Largo (oil production), a 50%
WI in Nacatimbay (production of natural gas and condensate) and a 50% WI in Ipaguazu (exploration
land). These assets are reflected in the results for the six month period ended June 30, 2006.
During November and December of 2006 we acquired the following additional working interests in
Argentina, which further impacted the financial and operational results for the six month period
ended June 30, 2007.
Ø an additional 50% WI in Nacatimbay
Ø an additional 50% WI in Ipaguazu
Ø 50% WI in El Vinalar (oil production)
Ø 100% WI in Chivil (oil production)
Ø 100% WI in Surubi (exploration land)
Ø 100% WI in Santa Victoria (exploration land)
Ø 93.2% WI in Valle Morado (exploration land)
Prior to June 20, 2006 we did not own any properties in Colombia. On June 20, 2006 we acquired
Argosy Energy International L.P. and became the operator of eight blocks in Colombia. The Santana
and Guayuyaco blocks are currently producing. The Rio Magdalena, Talora, Chaza, Primavera, Azar and
Mecaya blocks are in their exploration phases. The addition of these assets to our portfolio
impacted the results for the six months ended June 30, 2007, and had a negligible impact on the
period ended June 30, 2006.
Revenues and Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Increase (decrease) from |
|
|
|
June 30, |
|
|
prior period |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
Oil Sales |
|
$ |
7,899,720 |
|
|
$ |
3,072,394 |
|
|
$ |
4,827,326 |
|
Natural Gas Sales |
|
|
35,494 |
|
|
|
67,219 |
|
|
|
(31,725 |
) |
Interest and Other |
|
|
331,350 |
|
|
|
|
|
|
|
331,350 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,266,584 |
|
|
$ |
3,139,613 |
|
|
$ |
5,126,951 |
|
|
|
|
|
|
|
|
|
|
|
The increase in revenue realized in the six month period ended June 30, 2007 as compared to the
prior year period is attributed primarily to the additional properties acquired during 2006. The
addition of interest income earned in the six month period in 2007 on our cash deposits also
contributed to the increase in revenue. We had no interest income in the relevant 2006 period
because the cash balances were sourced from the June 2006 private equity issuance. This asset did
not start generating interest income until the third quarter of 2006.
22
In Argentina, crude oil production after 12% royalties for the six month period ended June 30, 2007
was 107,642 barrels, compared to 51,547 barrels for the six month period ended June 30, 2006. The
difference in production can be primarily attributed to the additional properties acquired during
2006.
In Argentina, oil sales after 12% royalties were 99,989 barrels for the six months ended June 30,
2007, compared to 64,798 barrels for the six month period ended June 30, 2006. The difference
between the results for the six months ended June 30, 2007 and the same period in 2006 can be
primarily attributed to the additional properties acquired during 2006.
In Argentina, net revenue for the six months ended June 30, 2007, after deducting royalties at an
average royalty rate of 12% of production revenue, was $3.7 million for oil. Net revenue for the
same period in 2006 was $2.6 million. Our net loss from Argentina operations for the first half of
2007 was $0.8 million, due primarily to planned workover and maintenance activities, which reduced
production by approximately 8,400 barrels during the half, with a corresponding reduction of $0.3
million to revenue.
Average sales price for oil sales during the six months ended June 30, 2007 was $38.27 per barrel
compared to $41.35 for the same period in 2006. Average sales prices at Nacatimbay for natural gas
sales were $2.09 per Mcf for the six months ended June 30, 2007 compared to $1.64 for the same
period in 2006. Although oil pricing determination is based on West Texas Intermediate (WTI)
price, oil and natural gas prices are effectively regulated in Argentina.
In Colombia, production after royalties was 94,556 barrels for the six months ended June 30, 2007.
Following the acquisition on June 20, 2006 there was production of 7,875 barrels from Colombia for
the same period during 2006, which represents 10 days of production.
In Colombia, sales after royalties were 37,854 and 85,734 barrels for the three and six months
ended June 30, 2007, respectively. Following the acquisition on June 20, 2006, sales after
royalties were 7,489 barrels from Colombia during the same periods of 2006, which represents 10
days of production.
In Colombia, net revenue was $4.3 million for the six month period ended June 30, 2007, reflecting
royalty rates of 20% for the Santana block and 8% for the Guayuyaco, Juanambu, and Costayaco
blocks. The average sales prices for oil during this period was $48.44 per barrel. Our net loss
from the Colombian operations was $0.3 million for the six month period ended June 30, 2007.
We earned interest income of $331,350 in the month period in 2007 on our cash deposits from our
financing in June 2006, compared to no interest income in the corresponding 2006 periods.
We expect our revenues to increase as we describe in Liquidity and Capital Resources.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Increase (decrease) from |
|
|
|
June 30, |
|
|
prior period |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
Operating Expenses |
|
$ |
4,105,980 |
|
|
$ |
1,442,620 |
|
|
$ |
2,663,360 |
|
Cost per barrel |
|
$ |
19.90 |
|
|
$ |
24.04 |
|
|
$ |
(4.14 |
) |
For the six month period ended June 30, 2007, operating expenses were $19.90 per barrel.
Argentinas operating costs were $25.25 per barrel, which included $7.07 per barrel of costs
associated with one-time workover projects, for the six months ended June 30, 2007. Colombias
operating costs were $13.57 per barrel, which included $5.46 per barrel of costs associated with
one-time workover projects, for the six months ended June 30, 2007. Operating
23
expenses for the
months ended June 30, 2006 were $24.04 per barrel, which were significantly higher than 2007.
Higher costs are the result of lower production volumes during 2006. There were only 10 days of
operating expenses for Colombia during the period ended June 30, 2006.
We expect our operating costs to increase as we describe in Liquidity and Capital Resources.
Depletion, depreciation and accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Increase from |
|
|
|
June 30, |
|
|
prior period |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
Cost |
|
$ |
4,700,898 |
|
|
$ |
874,465 |
|
|
$ |
3,826,433 |
|
Depletion, depreciation and accretion for the three and six months ended June 30, 2007, increased
compared to the same periods in 2006. The increase reflects the addition of properties acquired in
Colombia and Argentina during 2006. The depletion rate for 2007 is approximately $16
per barrel in Colombia and $14 per barrel in Argentina, and for 2006
was approximately $14 per barrel in Argentina.
We expect our depletion rate on a per barrel basis in Colombia to decrease as we describe in
Liquidity and Capital Resources.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Increase from |
|
|
|
June 30, |
|
|
prior period |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
Cost |
|
$ |
4,618,856 |
|
|
$ |
2,471,583 |
|
|
$ |
2,147,273 |
|
The increase in general and administrative costs for the six months ended June 30, 2007 compared to
the same period in 2006, was due to the increased level of activity related to our business
resulting from the acquisition of the Argosy properties in Colombia and additional properties in
Argentina.
Liquidated Damages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Increase from |
|
|
|
June 30, |
|
|
prior period |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
Liquidated damages |
|
$ |
7,366,949 |
|
|
$ |
|
|
|
$ |
7,366,949 |
|
Liquidated damages expensed in the first half of 2007 relate to liquidated damages payable to our
stockholders as a result of the registration statement for 50 million units sold in the second
quarter of 2006 not becoming effective within the period specified in the share registration rights
agreements for those securities. We expensed a further $1,258,065 in the fourth quarter of 2006.
This registration statement became effective on May 14, 2007.
On June 27, 2007, under the terms of the Registration Rights Agreements, we obtained a sufficient
number of consents from the signatories to the agreements waiving our obligation to pay in cash the
accrued liquidated damages. We agreed to amend the terms of the warrants issued in the 2006
offering by reducing the exercise price of
24
the warrants from $1.75 to $1.05 and extending the life
of the warrants by one year, in lieu of cash payment of liquidated damages.
The $8.6 million of liquidated damages have been recorded as expense in the consolidated statement
of operations in the amounts $4,132,150 and $3,234,799 in the first and second quarters of 2007,
respectively, and $1,258,065 in the fourth quarter of 2006. The change of $8.6 million in the fair
value of the warrants arising from the amendment to the terms of the warrants was determined using
a Black-Scholes warrant pricing model based on a 25% volatility rate. The change in fair value of
the warrants has been reflected as an increase of $8.6 million in the value of the warrants
recorded on the consolidated balance sheet and a corresponding settlement of the liability for
liquidated damages.
Unrealized Loss from Derivative Instrument
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Increase from |
|
|
|
June 30, |
|
|
prior period |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
Cost |
|
$ |
676,984 |
|
|
$ |
|
|
|
$ |
676,984 |
|
Under the terms of the Credit Facility with Standard Bank, we were required to enter into a
derivative instrument for the purpose of obtaining protection against fluctuations in the price of
oil in respect of at least 50% of our projected aggregate net share of Colombian production after
royalties for the three-year term of the Facility. In accordance with the terms of the Facility, we
entered into a costless collar derivative instrument for crude oil based on WTI price, with a floor
of $48.00 and a ceiling of $80.00, for a three-year period, for 400 barrels per day from March 2007
to December 2007, 300 barrels per day from January 2008 to December 2008, and 200 barrels per day
from January 2009 to February 2010.
During the six months ended June 30, 2007, we recognized unrealized losses on these derivative
instruments as reflected in the table above.
Foreign Exchange Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Increase from |
|
|
|
June 30, |
|
|
prior period |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
Cost |
|
$ |
(6,134 |
) |
|
$ |
3,842 |
|
|
$ |
(9,976 |
) |
The loss in 2007 arose primarily from translation of local currency denominated transactions in our
South American operations into US dollars against a US dollar which was significantly weaker than
the first half of 2006.
Income Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Increase from |
|
|
|
June 30, |
|
|
prior period |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
Income tax |
|
$ |
1,474,700 |
|
|
$ |
(137,783 |
) |
|
$ |
1,612,483 |
|
25
Our Argentina operations generated a net loss before tax of $1.3 million, which resulted in a local
income tax benefit of $480,102. The Colombia operations generated a tax refund for 2006 of
$1,045,408 which is offset by the 2007 income tax expense of ($777,778) for a net income tax
benefit of $267,630. The tax benefit was further increased through the amortization of the
Colombian deferred tax asset for the six months ending June 30, 2007. This compares to a tax
expense of $137,783 for the six months ended June 30, 2006 as a result of net income before tax
generated by the Argentina business unit.
Capital Expenditures
During the six months ended June 30, 2007, we spent $9.3 million on capital projects.
In Argentina, capital expenditures for the six months ending June 30, 2007, were $0.6 million. We
incurred costs of $0.6 million to complete the Puesto Climaco-2 sidetrack well in the Vinalar Block
which was drilled in December 2006.
In Colombia, capital expenditures for the six months ending June 30, 2007, were $8.2 million.
We drilled the Juanambu-1 and Costayaco-1 wells for a net cost of $5.9 million. We drilled the
following wells in Colombia which were dry and abandoned: Laura-1 and Cachapa-1. The drilling costs
for these wells were paid by our partners and the wells were drilled at no cost to Gran Tierra. We
drilled the Caneyes-1 well, which was dry and abandoned, at a cost to us of $1.7 million. We
incurred costs of $0.6 million on other projects in Colombia during 2007 for other exploration
properties in Colombia.
Results of Operations for the years ended December 31, 2006 and 2005
Revenues
Revenues for the year ended December 31, 2006 were $12,072,913 compared to $1,059,297 for the
year ended December 31, 2005. The increase in revenues is due primarily to the inclusion of a full
year of Argentina operations and the acquisition of the Colombian properties in June 2006. In
Argentina, the 2006 results include a full year of activities at Palmar Largo, four months at
Nacatimbay, six months of activities at El Vinalar beginning July 1, 2006, and one month of
activities at Chivil, commencing December 1. Revenues in 2005 reflect only the Argentina operations
for a 4-month period from September 1, 2005, the date of acquisition of the Palmar Largo and
Nacatimbay properties.
In Argentina, crude oil production after 12% royalties for the year ended December 31, 2006
was 115,420 barrels, including 103,982 barrels from Palmar Largo for the full year, 7,872 barrels
from El Vinalar for the period July 1 to December 31, 2006, and 3,567 barrels from Chivil for
December 1 to December 31, 2006. Average daily production for these periods was 285 barrels from
Palmar Largo, 43 barrels from El Vinalar and 115 barrels from Chivil. In addition, production of
condensate from Nacatimbay after royalties was 363 barrels, or an average of
26
12 barrels per day for the period. In 2005, crude oil production after royalties of 12%, for the
four-month period from September 1 (acquisition date of the Argentina properties) to December 31,
2005, was 36,011 barrels from Palmar Largo, or an average of approximately 293 barrels per day. In
addition, production of condensate from Nacatimbay averaged 5 barrels per day for the period.
In Argentina, oil sales after 12% royalties were 127,712 barrels for the year ended December
31, 2006 including 118,121 barrels from Palmar Largo for the full year, 7,644 barrels from El
Vinalar for the period July 1 to December 31, 2006, and 1,947 barrels from Chivil for December 1 to
December 31, 2006. Average daily sales for these periods were 324 barrels from Palmar Largo, 42
barrels from El Vinalar and 63 barrels from Chivil. In addition, sales of condensate after
royalties were 363 barrels for the year. Natural gas sales at Nacatimbay, which had been shut in
for most of 2005, were 41,447 thousand cubic feet, after 12% royalty, for the period, or 345
thousand cubic feet per day. Oil sales at Palmar Largo during 2005 were reduced to 25,132, or an
average of 206 barrels per day, due to severe weather conditions in Northern Argentina, as extreme
rainfall and poor road conditions curtailed tanker truck traffic through November and December
2005. As a result, oil inventory increased to 13,948 barrels by December 31, 2005. Natural gas
sales at Nacatimbay for the period averaged 494 thousand cubic feet per day, after 12% royalty.
In Argentina, net revenue for the year ended December 31, 2006, after deducting royalties at
an average royalty rate of 12% of production revenue, and after deducting turnover taxes, was
$5,033,363 for oil and $75,488 for natural gas and condensate. Net revenue for the period from
incorporation on January 26, 2005 to December 31, 2005 was $1,059,297, reflecting an average
royalty rate of 12% of production revenue, including $946,098 from oil at Palmar Largo and $113,199
from natural gas and condensate at Nacatimbay.
Average sales price for Palmar Largo oil in 2006 was $34.75 per barrel (2005 $37.80 per
barrel). Average sales prices at Nacatimbay were $36.37 per barrel of condensate (2005 $37.58 per
barrel) and $1.74 per thousand cubic feet of natural gas (2005 $1.50 per thousand cubic feet of
natural gas). Oil and natural gas prices are effectively regulated in Argentina.
In Colombia, we recorded production and results of operations beginning June 21, 2006 in
conjunction with our acquisition of Argosy. We recorded no production in 2005. Production after
royalties was 134,269 barrels for the period from June 21 to December 31, 2006, comprising 70,746
barrels from the Santana block and 63,523 barrels from the Guayuyaco block, representing an average
production rate of 692 barrels per day for the period. Oil sales were 129,209 barrels for the
period from June 21 to December 31, 2006, or 666 barrels per day on average during the period.
In Colombia, net revenue was $6,612,190 for the year ended December 31, 2006, reflecting
royalty rates of 20% for the Santana block and 8% for the Guayuyaco block. The average sales price
for oil in 2006 was $52.33 per barrel.
Interest revenue earned on our cash deposits was $351,872 for the year ended December 31, 2006
and none in 2005.
Operating Expenses
For the year ended December 31, 2006, operating expenses were $4,233,470 compared to $395,287
in 2005, reflecting the inclusion in 2006 of a full year of Argentine operating activities at
Palmar Largo, four months at Nacatimbay, six months of activities at El Vinalar beginning July 1,
2006 and one month at Chivil commencing December 1, and six months plus ten days of operations in
Colombia beginning June 21, 2006.
In Argentina, operating expenses for 2006 totaled $2,846,705 (approximating $20.37 per
barrel), primarily at Palmar Largo including an inventory adjustment of $409,582 ($2.93 per barrel)
due to an underlift of crude oil volumes by a partner in the Palmar Largo joint venture. As of
December 31, 2006, we have accrued the impact of an agreement among the joint venture partners
providing for the recovery of underlifted volumes. Operating expenses totaled $395,287 for the
period from incorporation on January 26, 2005 to December 31, 2005, representing four months of
operations in Argentina. This equates to an average operating cost of $8.90 per barrel of oil
equivalent (natural gas conversion 20 to 1). Operating costs for 2006 have increased primarily due
to workover activity at Palmar Largo. Work over costs are treated as an operating expense.
27
In Colombia, operating expenses were $1,386,765 in 2006 or $10.71 per barrel for the period
June 21 to December 31, 2006. We have no comparative data for 2005 because the business was
acquired during 2006.
Depletion, depreciation and accretion
Depreciation, depletion and accretion was $4,088,437 for 2006, including accretion of asset
retirement obligations of $5,061, compared to $462,119 in 2005, reflecting the inclusion of a full
year of operations at Palmar Largo, additional Argentina acquisitions in 2006, and the inclusion of
Colombia operations in June 2006. The majority of the 2006 expense represents the depletion of oil
and gas assets in Argentina and the newly acquired Colombia properties. Depreciation, depletion and
accretion recorded in 2005 primarily relates to the depletion of the acquisition cost for the
Argentina properties.
General and Administrative
General and administrative costs for 2006 were $6,998,805, including staffing and other costs
for our offices in Calgary, Argentina and Colombia. This represented a $4,516,735 or a 182%
increase over 2005 costs. The incremental increase in general and administrative costs in 2006 was
primarily due to operating fully-staffed branch offices in Colombia and Argentina, the increased
level of activity related to our expansion of operations, which resulted from acquisition of the
Argosy assets in Colombia and properties in Argentina, and costs related to the registration of our
securities. The increase in costs was primarily in four main categories: professional services
increased by $1,382,134; employee costs increased by $1,566,979; bank and debt related fees
increased by $561,971; and office related costs increased by $732,199.
Liquidated Damages
Liquidated damages of $1,527,988 recorded in 2006 relate to liquidated damages payable to our
stockholders as a result of the registration statements for our securities issued in 2005 and 2006
not becoming effective within the periods specified in the share registration rights agreements for
those securities. The amount expensed includes $269,923 related to 15,047,606 units issued in the
fourth quarter of 2005 and first quarter of 2006 and $1,258,065 related to 50 million units sold in
the second quarter of 2006. We did not have any liquidated damages in 2005. Our registration
statement for our 2005 private placement became effective in February 2007, and the amount of
$269,923 incurred in 2006 in connection with the late effectiveness of this registration statement
is the maximum amount of liquidated damages payable in respect of these units. Our registration
statement for our June 2006 private placement became effective
in May 2007. In April 2007, holders of 948,853 units
exercised their right to cause us to return their purchase price for their units.
Foreign Exchange Loss
Foreign exchange loss was $370,538 for the year ended December 31, 2006 compared to a gain of
$31,271 for 2005. The loss arose primarily from translation of local currency denominated
transactions in our South American operations into US dollars.
Income Tax
We recorded an income tax expense of $677,380 in 2006 compared to an income tax benefit of $29,228
in 2005. The Colombia operations generated a net income before tax of $2.4 million dollars, which
resulted in a local income tax liability, offset by income tax assets arising from losses incurred
in Argentina.
Net Income (Loss) Available to Common Shares
The net loss for the year ended December 31, 2006 was $5,823,704, or $0.08 per share. This
loss includes a full year of operating activities at Palmar Largo and six months plus ten days of
operations in Colombia, and costs related to the share registration statements. The net loss for
the period from incorporation on January 26, 2005 to December 31, 2005, was $2,219,680, equivalent
to a loss of $0.16 per share. These results reflect four months of operating activity, twelve
months of business activity and significant costs relating to the November 10, 2005 share
exchange.
28
Per share calculations for 2006 and 2005 are based on basic weighted average shares
outstanding of 72,443,501 and 13,538,149, respectively.
Liquidity and Capital Resources
As of June 30, 2007, our cash balance was $9.8 million and our current assets (including cash
balance) less current liabilities was $7.2 million, compared to cash of $24.1 million and $2.2
million and current assets less current liabilities of $14.3 million and $2.8 million at December
31, 2006 and 2005, respectively. We also have a credit facility with a bank that provides for
borrowing in an amount based on the present value of our petroleum reserves, up to a maximum of $50
million.
The accounts receivable balance at June 30, 2007, was $5.3 million which is $0.2 million greater
than the balance at December 31, 2006. We reclassified a number of tax categories totaling ($2.2)
million to taxes receivable which were previously reported in accounts receivable as at December
31, 2006. The receivable balance decreased as of June 30, 2007, in Argentina, by ($0.3) million
because partner payments were collected for joint capital projects during 2007. The receivable balance increased by $2.7 million in Colombia due to the cash calls
requested from joint venture partners for capital expenditures on joint projects.
Taxes receivable, net of taxes payable, increased by $4.0 million in the second quarter. We
reclassified a number of tax categories totaling $2.2 million which were previously reported in
accounts receivable as at December 31, 2006. The remaining net increase of $1.8 million is due to a
$1.0 million tax refund due to the Colombian operations for 2006, $0.4 million for an increase in
the VAT tax due to us in Argentina, and $0.4 million for an increase in the income tax carryforward
balance in Argentina.
Current liabilities decreased by $6.2 million for the six month period ended June 30, 2007,
primarily due to a reduction of $4.5 million in accrued liabilities due to the settlement of
Argentine property acquisition costs and drilling costs recorded in December 2006.
During the six months ended June 30, 2007 we reduced our cash balances by $14.3 million. We had
cash inflows of $1.3 million from operating activities, and $15.5 million outflows from investing
activities including oil and gas property expenditures of $9.4 million relating primarily to our
drilling and other oilfield activities primarily in Colombia.
During the year ended December 31, 2006, we increased our cash balances by $21,889,447 and
funded our capital expenditures and operating expenditures from proceeds of a series of private
placements of our securities. Cash outflows comprised $829,618 from operating activities and cash
inflows of $69,381,827 from financing activities, offset by cash outflows of $46,672,884 for
investing activities. Proceeds from private placements included $75,000,000, less issue costs of
$6,303,699, from the sale of 50,000,000 units of our securities in June 2006, $610,000 from the
sale of 762,500 units in the first quarter of 2006, and proceeds from the exercise of warrants to
purchase common stock. However, of the amount raised, $1,280,951 was held in escrow, and the holders
of those units had the right to return the units to us and receive their purchase price back under
the terms of the escrow agreement because we were unable to obtain a securities laws exemption for
those holders by a specified date. In April 2007, holders of those units exercised their right to cause us to return their purchase price for their units.
During 2005, we funded the majority of our capital expenditures from funds received through
three private placements of our securities. Cash inflows from financing activities were
$13,206,116, offset by cash outflows of $2,277,065 from operating activities and $8,707,595 for
investing activities. Proceeds from private placements included $11,428,084 from the sale of
14,285,106 units of our securities in the fourth quarter of 2005.
Capital expenditures for the year ended December 31, 2006 were $48,394,181 and were primarily
related to the Argosy purchase in Colombia, the purchase of the El Vinalar and CGC properties in
Argentina, development activity at Palmar Largo, drilling activities in Colombia, and office
equipment and leasehold improvements in both Calgary and Argentina. During 2005, capital
expenditures for the period from incorporation on January 26, 2005 to December 31, 2005, were
$8,775,327, predominantly for the acquisition cost of the Palmar Largo, Nacatimbay and Ipaguazu
interests in Argentina. The purchase price for the Argentina acquisition was $7,032,714 plus
post-closing adjustments of $708,955 with the remaining capital expenditures relating to our share
of the cost of drilling one well at Palmar Largo.
29
The
following were contractual commitments at December 31, 2006, associated with debt
obligations, lease obligations, and contractual commitments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
Less than |
|
|
|
|
Contractual Commitment |
|
Total |
|
1 year |
|
1-3 years |
|
4-5 years |
|
Long-Term Debt Obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Liquidated
damages |
|
|
1,527,988 |
|
|
|
1,527,988 |
|
|
|
|
|
|
|
|
|
Work
Commitments - Peru |
|
|
8,600,000 |
|
|
|
|
|
|
|
3,533,333 |
|
|
|
5,066,667 |
|
Office Leases |
|
|
460,683 |
|
|
|
118,752 |
|
|
|
260,043 |
|
|
|
81,888 |
|
Office Equipment Leases |
|
|
31,524 |
|
|
|
13,680 |
|
|
|
17,198 |
|
|
|
646 |
|
|
|
|
Vehicle |
|
|
77,367 |
|
|
|
49,233 |
|
|
|
28,134 |
|
|
|
|
|
|
|
|
Housing |
|
|
8,690 |
|
|
|
8,690 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,706,252 |
|
|
$ |
1,718,343 |
|
|
$ |
3,838,709 |
|
|
$ |
5,149,201 |
|
|
|
|
The minimum capital expenditure commitment for blocks 122 and 128 in Peru is $1.0 million for
the initial 3-year work period. We have no other capital expenditure commitments, other than
discretionary capital expenditures to be made in the normal course of operations for workover and
drilling activities. As well, post-closing adjustments of $3.8 million, related to the acquisition
of CGCs interests in six properties, were paid in January 2007.
Effective February 28, 2007, we entered into a credit facility with Standard Bank Plc. The facility
has a three-year term which may be extended by agreement between the parties. The borrowing base is
the present value of our petroleum reserves up to maximum of $50 million. The initial borrowing
base is $7 million and the borrowing base will be re-determined semi-annually based on reserve
evaluation reports. The facility includes a letter of credit sub-limit of up to $5 million. Amounts
drawn down under the facility bear interest at the Eurodollar rate plus 4%. A stand-by fee of 1%
per annum is charged on the un-drawn amount of the borrowing base. The facility is secured
primarily by our Colombian assets. Under the terms of the facility, we are required to maintain
compliance with specified financial and operating covenants. We are also required to use a
derivative instrument for the purpose of obtaining protection against fluctuations in the price of
oil in respect of at least 50% of our projected aggregate net share of Colombian production after
royalties for the three-year term of the facility. No amounts have been drawn-down under the
facility.
In accordance with the terms of the credit facility with Standard Bank Plc, we entered into a
costless collar derivative instrument for crude oil based on West Texas Intermediate (WTI) price,
with a floor of $48.00 and a ceiling of $80.00, for a three-year period, for 400 barrels per day
from March 2007 to December 2007, 300 barrels per day from January 2008 to December 2008, and 200
barrels per day from January 2009 to February 2010.
During 2007, we planned to drill ten wells, conduct several workovers of existing wells, and
conduct technical studies on our existing acreage.
In Argentina, we completed the Puesto Climaco-2 side track well in the first quarter of 2007.
In Colombia, we scheduled eight new wells for drilling in 2007, consisting of the Laura-1
exploration well in the Talora Block, the Caneyes-1 exploration well in the Rio Magdalena Block,
the Soyona-1 and Cachapa-1 exploration wells in the Primavera Block, the Juanambu-1 and Floresta-1
exploration wells in the Guayuyaco Block, the Costayaco-1 exploration well in the Chaza Block, and
the Piedra-1 exploration well in the Talora block. Laura-1 was drilled in January 2007, Caneyes-1
was drilled in February 2007, the Soyona-1 well was drilled in April and Cachapa-1 was drilled in
March 2007. The four wells were plugged and abandoned.
Successful wells were drilled in the Chaza and Guayayaco areas. The Juanambu-1 well was drilled in
March 2007 and encountered hydrocarbon shows in four zones. Testing established the presence of a
significant oil accumulation. The Costayaco-1 well was drilled and tested, and also indicated a
significant accumulation of oil in a number of zones. Consequently, our proven reserves in Colombia
have substantially increased. As a result, the depletion rate per barrel for Colombia will decrease
substantially in the third quarter of 2007. We commenced production
during the third quarter for Costayaco-1 and expect commercial production
to commence during the fourth quarter for Juanambu-1, assuming we receive the required government approvals. We expect the production from
these two wells to increase revenues, net of operating costs, for the remainder of the year. We
also expect to incur additional development costs during upgrading of production facilities in both
locations. In addition, we expect to initiate planning for field development as a result of the
Costayaco and Juanambu discoveries. We are planning two development wells at Costayaco based on
available seismic data. We are also planning a new 3-D seismic data acquisition program over the
Costayaco structure to optimize positioning of future drilling locations.
30
In Peru, operations in 2007 are limited to technical studies of Block 122 and Block 128, which
involve expenditures of approximately $750,000.
In addition to current projects, we may pursue new ventures in South America, in areas of current
activity and in new regions or countries. There is no assurance additional opportunities will be
available, or if we participate in additional opportunities that those opportunities will be
successful. Based on projected production, prices and costs, we believe that our current operations
and capital expenditure program can be maintained from cash flow from existing operations, cash on
hand, and our credit facility, barring unforeseen events or a severe downturn in oil and gas
prices. Should our operating cash flow decline, we would examine measures such as reducing our
capital expenditure program, issuance of debt, or issuance of equity.
Future growth and acquisitions will depend on our ability to raise additional funds through equity,
warrant exercises and/or debt markets. During 2005 and 2006 we completed financing initiatives to
support recent acquisition initiatives, which have also brought additional production and cash flow
into our company. Increases in the borrowing base under our credit facility are dependent on our
success in increasing oil and gas reserves and on future oil prices. Additional funds will be
provided to us if holders of our warrants to purchase common shares decide to exercise the
warrants.
Our initiatives to raise debt or equity financing to fund capital expenditures or other acquisition
and development opportunities may be affected by the market value of our common stock. If the price
of our common stock declines, our ability to utilize our stock to raise capital may be negatively
affected. Also, raising funds by issuing stock or other equity securities would further dilute our
existing stockholders, and this dilution would be exacerbated by a decline in stock price. Any
securities we issue may have rights, preferences and privileges that are senior to our existing
equity securities. Borrowing money may also involve further pledging of some or all of our assets
that are not currently pledged under our existing credit facility.
Off-Balance Sheet Arrangements
As
at June 30, 2007, and December 31, 2006 and 2005, we had no off-balance sheet arrangements.
Critical Accounting Estimates
Use of Estimates
The preparation of financial statements under generally accepted accounting principles
(GAAP) in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Our critical accounting
estimates are discussed below.
Oil and Gas Accounting-Reserves Determination
We follow the full cost method of accounting for our investment in oil and natural gas
properties, as defined by the SEC, as described in note 2 to our consolidated financial statements.
Full cost accounting depends on the estimated reserves we believe are recoverable from our oil and
gas reserves. The process of estimating reserves is complex. It requires significant judgments and
decisions based on available geological, geo-physical, engineering and economic data.
To estimate the economically recoverable oil and natural gas reserves and related future net
cash flows, we incorporate many factors and assumptions including:
|
|
|
expected reservoir characteristics based on geological, geophysical and engineering
assessments; |
|
|
|
|
future production rates based on historical performance and expected
future operating and investment activities; |
|
|
|
|
future oil and gas quality differentials; |
|
|
|
|
assumed effects of regulation by governmental agencies; and |
|
|
|
|
future development and operating costs. |
31
We believe our assumptions are reasonable based on the information available to us at the time
we prepare our estimates. However, these estimates may change substantially as additional data from
ongoing development activities and production performance becomes available and as economic
conditions impacting oil and gas prices and costs change.
Management is responsible for estimating the quantities of proved oil and natural gas reserves
and for preparing related disclosures. Estimates and related disclosures are prepared in accordance
with SEC requirements and generally accepted industry practices in the US as prescribed by the
Society of Petroleum Engineers. Reserve estimates, including the standardized measure of discounted
future net cash flow and changes therein, are prepared at least annually by independent qualified
reserves consultants.
Our board of directors oversees the annual review of our oil and gas reserves and related
disclosures. The Board meets with management periodically to review the reserves process, results
and related disclosures and appoints and meets with the independent reserves consultants to review
the scope of their work, whether they have had access to sufficient information, the nature and
satisfactory resolution of any material differences of opinion, and in the case of the independent
reserves consultants, their independence.
Reserves estimates are critical to many of our accounting estimates, including:
|
|
|
Determining whether or not an exploratory well has found economically producible
reserves. |
|
|
|
|
Calculating our unit-of-production depletion rates. Proved reserves estimates are used
to determine rates that are applied to each unit-of-production in calculating our depletion
expense. |
|
|
|
|
Assessing, when necessary, our oil and gas assets for impairment. Estimated future cash
flows are determined using proved reserves. The critical estimates used to assess
impairment, including the impact of changes in reserves estimates, are discussed below. |
Oil and Gas Accounting-Impairment
We evaluate our oil and gas properties for impairment on a quarterly basis. We assess
estimated discounted future cash flows to determine if properties are impaired on a cost center
basis. If the 10% discounted future cash flows for a cost center are less than the carrying amount,
the cost center is impaired and written down to its fair value.
Cash flow estimates for our impairment assessments require assumptions about two primary
elements constant prices and reserves. It is difficult to determine and assess the impact of a
decrease in our proved reserves on our impairment tests. The relationship between the reserves
estimate and the estimated discounted cash flows is complex because of the necessary assumptions
that need to be made regarding period end production rates, period end prices and costs. Under full
cost accounting, we perform a ceiling test to ensure that unamortized capitalized costs in each
cost centre do not exceed their fair value. We recognize an impairment loss in net earnings when
the carrying amount of a cost center is not recoverable and the carrying amount of the cost center
exceeds its fair value. A cost center is defined as a country. Capitalized costs, less accumulated
depreciation (carrying value) are limited to the sum of: the present value of estimated future net
revenues from proved oil and gas reserves, less future value of unproven properties included in the
costs being amortized; less income tax effects related to the differences between the book and tax
basis of the properties. If unamortized capital costs within a cost center exceed the cost center
ceiling, the excess shall be charged to expense and separately disclosed during the period in which
the excess occurs. As a result, we are unable to provide a reasonable sensitivity analysis of the
impact that a reserves estimate decrease would have on our assessment of impairment.
We
assessed our oil and gas properties for impairment as at June 30,
2007 and December 31, 2006 and 2005 and
found no impairments were required based on our assumptions. Estimates of standardized measure of
our future cash flows from proved reserves were based on realized crude oil prices of $48.66 in
Colombia and $35.56 to $38.57 for our Argentina properties. A future reduction in oil prices and/or
quantities of proved reserves would reduce the ceiling limitation and may result in a ceiling test
write-down.
32
Asset Retirement Obligations
We are required to remove or remedy the effect of our activities on the environment at our
present and former operating sites by dismantling and removing production facilities and
remediating any damage caused. Estimating our future asset retirement obligations requires us to
make estimates and judgments with respect to activities that will occur many years into the future.
In addition, the ultimate financial impact of environmental laws and regulations is not always
clearly known and cannot be reasonably estimated as standards evolve in the countries in which we
operate.
We record asset retirement obligations in our consolidated financial statements by discounting
the present value of the estimated retirement obligations associated with our oil and gas wells and
facilities and chemical plants. In arriving at amounts recorded, we make numerous assumptions and
judgments with respect to ultimate settlement amounts, inflation factors, credit adjusted discount
rates, timing of settlement and expected changes in legal, regulatory, environmental and political
environments. The asset retirement obligations we have recorded result in an increase to the
carrying cost of our property, plant and equipment. The obligations are accreted with the passage
of time. A change in any one of our assumptions could impact our asset retirement obligations, our
property, plant and equipment and our net income.
It is difficult to determine the impact of a change in any one of our assumptions. As a
result, we are unable to provide a reasonable sensitivity analysis of the impact a change in our
assumptions would have on our financial results. We are confident, however, that our assumptions
are reasonable.
Goodwill
Goodwill represents the excess of purchase price of business combinations over the fair value
of net assets acquired and we test for impairment at least annually. The impairment test requires
allocating goodwill and all other assets and liabilities to assigned reporting units. We estimate
the fair value of each reporting unit and compare it to the net book value of the reporting unit.
If the estimated fair value of the reporting unit is less than the net book value, including
goodwill, we write down the goodwill to the implied fair value of the goodwill through a charge to
expense. Because quoted market prices are not available for our reporting units, we estimate the
fair values of the reporting units based upon several valuation analyses, including comparable
companies, comparable transactions and premiums paid. The goodwill on our financial statements was
a result of the Argosy acquisition, and relates entirely to the Colombia reporting segment.
Deferred Income Taxes
We follow the liability method of accounting for income taxes whereby we recognize future
income tax assets and liabilities based on temporary differences in reported amounts for financial
statement and tax purposes. We carry on business in several countries and as a result, we are
subject to income taxes in numerous jurisdictions. The determination of our income tax provision is
inherently complex and we are required to interpret continually changing regulations and make
certain judgments. While income tax filings are subject to audits and reassessments, we believe we
have made adequate provision for all income tax obligations. However, changes in facts and
circumstances as a result of income tax audits, reassessments, jurisprudence and any new
legislation may result in an increase or decrease in our provision for income taxes.
New Accounting Pronouncements
Effective January 1, 2006, we adopted the SEC issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when quantifying Misstatements in Current Year
Financial Statements (SAB 108). SAB 108 requires companies to evaluate the materiality of
identified unadjusted errors on each financial statement and related financial statement disclosure
using both the rollover approach and the iron curtain approach. The rollover approach quantifies
misstatements based on the effects of correcting the misstatement existing in the balance sheet at
the end of the current year, irrespective of the misstatements year(s) of origin. Financial
statements would require adjustment when either approach results in quantifying a misstatement that
is material. Correcting prior year financial statements for immaterial errors would not require
previously filed reports to be amended. The adoption of SAB 108 did not have a material impact on
our consolidated financial statements.
33
In February 2006, the FASB issued Statement 155, Accounting for Certain Hybrid Instruments,
which amends Statement 133, Accounting for Derivative Instruments and Hedging Activities, and
Statement 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. Statement 155 permits fair value re-measurement for any hybrid financial instrument
that contains an embedded derivative that otherwise would require bifurcation from its host
contract in accordance with Statement 133. Statement 155 also clarifies other provisions of
Statement 133 and Statement 140. This statement is effective for all financial instruments acquired
or issued in fiscal years beginning after September 15, 2006 and
its adoption on January 1, 2007 did not have a material impact on our results of operations or financial position.
In July 2006, the FASB issued FIN 48 (FASB Interpretation Number) Accounting for Uncertainty in
Income Taxes with respect to FAS 109 Accounting for Income Taxes regarding accounting for and
disclosure of uncertain tax positions. This guidance seeks to reduce the diversity in practice
associated with certain aspects of the recognition and measurement related to accounting for income
taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. The interpretation requires that we recognize the impact of a tax position in the
financial statements if that position is more likely than not of being sustained on audit, based on
the technical merits of the position. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods and disclosure. In accordance
with the provisions of FIN 48, any cumulative effect resulting from the change in accounting
principle is to be recorded as an adjustment to the opening balance of accumulated deficit. This
interpretation is effective for fiscal years beginning after December 15, 2006 and its adoption on
January 1, 2007 did not have a material impact on our consolidated financial statements
and did not require us to record any amounts in the financial statements.
In September 2006, FASB issued Statement 157, Fair Value Measurements. Statement 157 defines
fair value, establishes a framework for measuring fair value under US generally accepted accounting
principles and expands disclosures about fair value measurements. This statement is effective for
fiscal years beginning after November 15, 2007. We do not expect the adoption of this statement
will have a material impact on our results of operations or financial position.
In December 2006, the FASB issued Staff Position (FSP) EITF 00-19-2, Accounting for Registration
Payment Arrangements. FSP EITF 00-19-2 specifies that the contingent obligation to make future
payments or otherwise transfer consideration under a registration payment arrangement, whether
issued as a separate agreement or included as a provision of a financial instrument or other
agreement, should be separately recognized and measured in accordance with FASB Statement No. 5,
Accounting for Contingencies. This FSP is effective for fiscal years beginning after December 15,
2006. The Company early adopted this FSP during the year ended December 31, 2006 and recorded
$1,258,065 in liquidated damages as an expense in the consolidated statement of operations and
deficit and the same amount in accrued liabilities at December 31, 2006. During the six month
period ended June 30, 2007 we expensed an additional amount of $7,366,949. As at June 30,
2007 we had recorded accumulated expenses for liquidated damages of $8,625,014. Pursuant
to an amendment of terms of Registration Rights Payments with respect to the associated shareholder
agreement, our shareholders waived the right to settle the liquidated damages in cash and
in lieu agreed to an amendment of the exercise price of the warrants from $1.75 to $1.05 on June
27, 2007, and an extension of one year in the term for the warrants. The settlement of the
liquidated damages is reflected as an increase to the value of the warrants included in the
shareholders equity section of the consolidated balance sheet.
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (FAS 159). FAS 159 permits an entity to elect fair value as the initial and
subsequent measurement attribute for many financial assets and liabilities. Entities electing the
fair value option would be required to recognize changes in fair value in earnings. Entities
electing the fair value option are required to distinguish on the face of the statement of
financial position, the fair value of assets and liabilities for which the fair value option has
been elected and similar assets and liabilities measured using another measurement attribute. FAS
159 is effective for our fiscal year 2008. The adjustment to reflect the difference between the
fair value and the carrying amount would be accounted for as a cumulative-effect adjustment to
retained earnings as of the date of initial adoption. We do not expect the adoption of this
statement will have a material impact on our results of operations or financial position
34
Quarterly Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before |
|
|
|
|
|
|
|
|
|
Basic |
|
Diluted |
|
|
|
|
|
|
|
|
|
|
Income Tax |
|
Income Tax |
|
|
|
|
|
Earnings per |
|
Earning per |
|
|
Revenues |
|
Expenses |
|
Provision |
|
Provision |
|
Net Income |
|
Share |
|
Share |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
4,516,830 |
|
|
$ |
11,465,422 |
|
|
$ |
(6,948,592 |
) |
|
$ |
298,408 |
|
|
$ |
(6,650,184 |
) |
|
($ |
0.07 |
) |
|
($ |
0.07 |
) |
Second Quarter |
|
|
3,749,734 |
|
|
|
9,993,111 |
|
|
|
(6,248,377 |
) |
|
|
1,176,292 |
|
|
|
(5,072,085 |
) |
|
($ |
0.05 |
) |
|
($ |
0.05 |
) |
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
1,049,629 |
|
|
$ |
2,211,120 |
|
$ |
|
(1,161,491 |
) |
|
$ |
57,457 |
|
|
$ |
(1,218,948 |
) |
|
($ |
0.03 |
) |
|
($ |
0.03 |
) |
Second Quarter |
|
|
2,089,984 |
|
|
|
2,581,393 |
|
|
|
(491,409 |
) |
|
|
80,325 |
|
|
|
(571,734 |
) |
|
($ |
0.01 |
) |
|
($ |
0.01 |
) |
Third Quarter |
|
|
5,394,949 |
|
|
|
4,750,887 |
|
|
|
644,062 |
|
|
|
710,417 |
|
|
|
(66,355 |
) |
|
($ |
0.00 |
) |
|
($ |
0.00 |
) |
Fourth Quarter |
|
|
3,538,351 |
|
|
|
7,675,837 |
|
|
|
(4,137,486 |
) |
|
|
(170,819 |
) |
|
|
(3,966,667 |
) |
|
($ |
0.04 |
) |
|
($ |
0.04 |
) |
|
|
|
$ |
12,072,913 |
|
|
$ |
17,219,237 |
|
|
$ |
(5,146,324 |
) |
|
$ |
677,380 |
|
|
$ |
(5,823,704 |
) |
|
($ |
0.08 |
) |
|
($ |
0.08 |
) |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
|
|
|
$ |
496 |
|
|
$ |
(496 |
) |
|
$ |
|
|
|
$ |
(496 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
Second Quarter |
|
|
|
|
|
|
261,021 |
|
|
|
(261,021 |
) |
|
|
|
|
|
|
(261,021 |
) |
|
($ |
0.06 |
) |
|
($ |
0.06 |
) |
Third Quarter |
|
|
349,263 |
|
|
|
626,537 |
|
|
|
(277,274 |
) |
|
|
7,370 |
|
|
|
(284,644 |
) |
|
($ |
0.02 |
) |
|
($ |
0.02 |
) |
Fourth Quarter |
|
|
710,034 |
|
|
|
2,420,151 |
|
|
|
(1,710,117 |
) |
|
|
(36,598 |
) |
|
|
(1,673,519 |
) |
|
($ |
0.04 |
) |
|
($ |
0.04 |
) |
|
|
|
$ |
1,059,297 |
|
|
$ |
3,308,205 |
|
|
$ |
(2,248,908 |
) |
|
$ |
(29,228 |
) |
|
$ |
(2,219,680 |
) |
|
($ |
0.16 |
) |
|
($ |
0.16 |
) |
|
We made our initial acquisition of oil and gas producing and non-producing properties in
Argentina in September 2005 for a total purchase price of approximately $7 million. Prior to that
time we had no revenues. In June 2006, we acquired our Colombia assets for consideration of $37.5
million cash, 870,647 shares of our common stock and overriding and net profit interests in certain
assets valued at $1 million. See Business for a description of these acquisitions.
Quantitative and Qualitative Disclosures About Market Risk
Our principal market risk relates to oil prices. We have not hedged these risks in the past.
Essentially 100% of our revenues are from oil sales at prices which are defined by contract
relative to West Texas Intermediate and adjusted for transportation and quality, for each month.
In Argentina, a further discount factor which is related to a tax on oil exports establishes a
common pricing mechanism for all oil produced in the country, regardless of its destination.
In accordance with the terms of the credit facility with Standard Bank Plc, which we entered
into on February 28, 2007, we entered into a costless collar hedging contract for crude oil based
on West Texas Intermediate (WTI) price, with a floor of $48.00 and a ceiling of $80.00, for a
three-year period, for 400 barrels per day from March 2007 to December 2007, 300 barrels per day
from January 2008 to December 2008, and 200 barrels per day from January 2009 to February 2010.
At June 30, 2007, the value of this costless collar was a loss of $676,984. A hypothetical 10% increase in WTI price
on June 30, 2007 would cause the loss to increase by approximately $904,550, and a hypothetical 10% decrease in
WTI price on June 30, 2007 would cause the loss to decrease by approximately $604,200.
We consider our exposure to interest rate risk to be immaterial. Interest rate exposures
relate entirely to our investment portfolio, as we do not have short-term or long-term debt. Our
investment objectives are focused on preservation of principal and liquidity. By policy, we manage
our exposure to market risks by limiting investments to high quality bank issuers at overnight
rates. We do not hold any of these investments for trading purposes. We do not hold equity
investments.
Foreign currency risk is a factor for our company but is ameliorated to a large degree by the
nature of expenditures and revenues in the countries where we operate. We have not engaged in any
formal hedging activity with regard to foreign currency risk. Our reporting currency is U.S.
dollars and essentially 100% of our revenues are related to the U.S. price of West Texas
intermediate oil. In Colombia, we receive 75% of oil revenues in U.S. dollars and 25% in Colombian
pesos at current exchange rates. The majority of our capital expenditures in Colombia are in U.S.
dollars and the majority of local office costs are in local currency. As a result, the 75%/25%
allocation between U.S. dollar and peso denominated revenues is approximately balanced between U.S.
and peso expenditures, providing a natural currency hedge. In Argentina, reference prices for oil
are in U.S. dollars and revenues are received in Argentine pesos according to current exchange
rates. The majority of capital expenditures within Argentina have been in U.S. dollars with local
office costs generally in pesos. While we operate in South America exclusively, the majority of
our spending since our inauguration has been for acquisitions. The majority of these acquisition
expenditures have been valued and paid in U.S. dollars.
35
BUSINESS
On November 10, 2005, Goldstrike, Inc. (Goldstrike), Gran Tierra Energy Inc., a
privately-held Alberta corporation which we refer to as Gran Tierra Canada and the holders of
Gran Tierra Canadas capital stock entered into a share purchase agreement, and Goldstrike and Gran
Tierra Goldstrike Inc. (which we refer to as Goldstrike Exchange Co.) entered into an assignment
agreement. In these two transactions, the holders of Gran Tierra Canadas capital stock acquired
shares of either Goldstrike common stock or exchangeable shares of Goldstrike Exchange Co., and
Goldstrike Exchange Co. acquired substantially all of Gran Tierra Canadas capital stock.
Immediately following the transactions, Goldstrike Exchange Co. acquired the remaining shares of
Gran Tierra Canada outstanding after the initial share exchange for shares of common stock of Gran
Tierra Energy Inc. using the same exchange ratio as used in the initial exchange. This two step
process was part of a single transaction whereby Gran Tierra Canada became a wholly-owned
subsidiary of Goldstrike Inc. Additionally, Goldstrike changed its name to Gran Tierra Energy Inc.
with the management and business operations of Gran Tierra Canada, but remains incorporated in the
State of Nevada.
In the above-described transactions between Goldstrike and the holders of Gran Tierra Canada
common stock, Gran Tierra Canada shareholders were permitted to elect to receive, for each share of
Gran Tierra Canadas common stock: (1) 1.5873016 exchangeable shares of Goldstrike Exchange Co.
(and ancillary rights), or (2) 1.5873016 shares of common stock of Goldstrike, or (3) a combination
of Goldstrike Exchange Co. exchangeable shares and Goldstrike common stock. All of Gran Tierra
Canadas shares were, through a series of exchanges, exchanged for shares of Goldstrike and/or
exchangeable shares of Goldstrike Exchange Co. Each exchangeable share of Goldstrike Exchange Co.
is exchangeable into one share of our common stock and has the same voting rights as a share of our
common stock.
The share exchange between the former shareholders of Gran Tierra Canada and the former
Goldstrike is treated as a recapitalization of Gran Tierra for financial accounting purposes.
Accordingly, the historical financial statements of Goldstrike before the share purchase and
assignment transactions will be replaced with the historical financial statements of Gran Tierra
Canada before the share exchange in all future filings with the SEC.
Company Overview
Goldstrike was incorporated in the United States in 2003. Prior to the transactions described
above, Goldstrike was engaged in mineral exploration in British Colombia, Canada. Gran Tierra
Canada was formed as an Alberta, Canada, corporation in early 2005. Following the above-described
transactions, our operations and management are substantially the operations and management of Gran
Tierra Canada prior to the transactions. The former Gran Tierra Canada was formed by an experienced
management team in early 2005 with extensive experience in oil and natural gas exploration and
production, including experience in most of the worlds principal petroleum producing regions. Our
objective is to acquire and exploit international opportunities in oil and natural gas exploration,
development and production, focusing on South America. We made our initial acquisition of oil and
gas producing and non-producing properties in Argentina in September 2005 for a total purchase
price of approximately $7 million. In addition, we acquired assets in Colombia and other minor
interests in Argentina and Peru during 2006.
We have not experienced any bankruptcy, receivership or similar proceedings.
Industry Introduction
The international oil and gas industry is extremely diverse and offers distinct opportunities
for companies in different countries. The fundamentals of the industry, however, are common:
|
o |
|
Oil and gas reserves tend to be distributed in a pyramid pattern. The
distribution of oil and gas reserves is generally depicted as a
pyramid with the greatest number of fields being smaller fields and
with very few large fields. Because of their size, the large fields
are more easily located - most have already been discovered and tend
to be, though are not always, the most economical to produce. |
36
|
o |
|
Oil and gas companies tend to be distributed in a pyramid pattern. Oil
and gas companies tend to be distributed in a pattern that is similar
to that of oil and gas reserves. There are many small companies and
few very large companies. Large companies tend to operate at the top
of the resource pyramid, where rewards are larger in size but fewer in
number. Smaller companies tend to operate at the base of the resource
pyramid, where rewards are smaller in size but plentiful in number.
Furthermore, large companies tend to divest smaller, non-core assets
as they grow, and tend to acquire smaller companies that have reached
a critical mass, perpetuating a cycle of growth. |
|
|
o |
|
In a mature producing area with a mature industry, the entirety of the
resource pyramid is being explored and developed by both small and
large oil and gas companies. Maturity is typically a function of time
and market forces. Government policy can have an important role,
encouraging or discouraging the full potential of the resource base
and industry. |
|
|
o |
|
By its nature, finding and producing oil and gas is a risky business.
Oil and gas deposits may be located miles below the earths surface.
There is no guarantee, despite the sophistication of modern
exploration techniques, that oil or gas will be present in a
particular location without drilling. Additionally, there is no
guarantee that a discovery will be commercially viable without follow
up drilling, nor can there be any guarantee that such follow up
drilling will be successful. There is also no guarantee that reserves
once established will produce at expected rates. Furthermore, adverse
political events and changing laws/regulations can threaten the
economic viability of oil and gas activity, the safety and security of
workers, or the reputation of a company that conducts business outside
of more stable countries. The effective management of risk is integral
to the oil and gas industry. |
|
|
o |
|
The oil and gas industry is capital intensive. Investment decisions
are based on long time horizons - the typical oil and gas project has
a life of greater than 20 years. Economics and value are based on a
long-term perspective. |
|
|
o |
|
The production profile for a substantial majority of oil and gas
reservoirs is a declining trend. Production from an oil or gas field
with a fixed number of wells declines over time. That decline rate
varies depending on the reservoir and well/development characteristics
but in general, steepest declines are earlier in the production life
of the field. Typically, production falls to a point where revenues
are insufficient to cover operating costs (the project reaches its
economic limit) and the field is abandoned. |
|
|
o |
|
Production levels in a field can be maintained by more intensive
drilling and/or enhancement of existing wells, and such efforts are
usually made to offset the natural decline in production. A low price
environment, budgetary constraints or lack of imagination can prevent
companies from taking appropriate action to offset a natural decline
in production. However, a shift to a high price environment can
present a significant, but short term opportunity, for new operators.
While production levels may be maintained for a period of time by more
intensive drilling, such efforts can only be maintained for short
periods of time and may not be effective. Moreover, such efforts may
also be economically unfeasible and may be impermissible under rules
and regulations applying to the field. |
New Opportunities for Smaller Companies
Several forces are at work in todays energy industry which provide significant opportunities
for smaller companies, like ours. The greatest opportunities tend to be in countries where resource
opportunities have been undervalued or overlooked or have been considered immaterial or uneconomic
by larger companies, and/or where governments are moving to realize the potential at the base of
the resource pyramid by attracting smaller companies.
Company Business Plan
Our plan is to build an international oil and gas company by operating in countries where a
smaller company can proliferate. Our initial focus is in select countries in South America,
currently Argentina, Colombia and Peru.
37
We are applying a two-pronged approach to growth, establishing a base of production,
development and exploration assets by selective acquisitions and achieving future growth through
drilling. We intend to duplicate this business model across selected countries in South America.
We pursue opportunities in countries with prolific petroleum systems (which in the petroleum
industry are defined as geologic settings with proven petroleum source rocks, migration pathways,
reservoir rocks and traps), stable legal environments and attractive royalty, taxation and other
fiscal terms.
A key to our business plan is positioning - being in the right place at the right time with
the right resources. The fundamentals of this strategy are described in more detail below:
|
o |
|
Position in countries that are welcoming to foreign investment, that
provide attractive fiscal terms and/or offer opportunities that have
been previously ignored or undervalued; |
The pace of oil and gas exploration and development in countries around the world is dictated
by geology and market forces and the intermediary impact of government policy and regulation. These
factors have combined today to create opportunities in South America. The initial countries of
interest to Gran Tierra are Argentina - where activity has historically been dominated by the
national oil company; Colombia - which has restructured its energy policies to appeal to smaller
foreign companies; and Peru - which is entering a new phase of exploration activity.
|
o |
|
Engage qualified, experienced and motivated professionals; |
Our
management team consists of two senior international oil and gas professionals most
recently with EnCana Corporation of Canada, a third member most recently with Pluspetrol in South
America, a fourth member who joined our company in conjunction with the acquisition of Argosy Energy
International LP in Colombia, and our fifth and newest member to join the team brings an
international finance background.
The qualifications of our board of directors complement the international experience of the
management team, providing an entrepreneurial, financial and market perspective of our business by
a group of individuals with experience in early stage public and private companies.
All of our employees have previously worked with members of our management team. Qualified
geophysicists, geologists and engineers are in short supply in todays market; our management has
demonstrated the ability to attract qualified professionals.
Our success equally depends on our strong support network in the legal, accounting and finance
disciplines, both at a corporate level and a local level.
|
o |
|
Establish an effective local presence; |
Our management believes that establishing an effective local presence is essential for success
- one that is familiar with the local operating environment, with the local oil and gas industry
and with local companies and governments in order to establish and expand business in the country.
We have established our office in Buenos Aires and have engaged qualified and respected local
management and professionals. We intend to establish offices in all countries in which we operate.
We expect our presence in Buenos Aires and recently acquired presence in Colombia to bring new and
increasing opportunities.
|
o |
|
Create alliances with companies that are active in areas and countries
of interest, and consolidate initial land/property positions; |
Our initial acquisitions in Argentina and Colombia, and award of land in Peru, have brought us
to the attention of other companies in South America, including partners, former employers and
associates. We hope to build on these business relationships to bring other opportunities to us,
and we expect to continue to build new relationships in the future. Such cooperation effectively
multiplies our business development initiatives and develops synergies within the local industry.
38
|
o |
|
Build a balanced portfolio of production, development, step-out and
more speculative exploration opportunities; |
Our initial acquisitions in Argentina and Colombia provide a base of production to provide
immediate cash flow and upside drilling potential. We are now focusing on expansion opportunities
in Argentina, Colombia and Peru, which we expect will include both low and higher risk projects,
with working interests that achieve an optimal balance of risk and reward.
The most effective risk mitigation in international oil and gas is diversification, and the
highest chance of success results from a diverse portfolio of independent opportunities. We are
moving purposefully in that regard.
|
o |
|
Assess and close opportunities expeditiously; |
We assess many oil and gas opportunities before we move to advance one; it is necessary to
assess the technical, economic and strategic merits quickly in order to focus our efforts. This
approach to business often provides a competitive advantage. Since inception, we evaluated more
than 100 potential acquisition opportunities.
|
o |
|
Do business in countries in which we are familiar with the people and assets. |
Our business model is a bringing together of peoples knowledge and relationships into a
single entity with a single purpose. We cannot compete with the international oil and gas industry
on an open tender basis. Assets and opportunities that are offered globally will receive a premium
price and chance of success for any one bidder is low. Our approach is based on niche opportunities
for buyer and seller, and to take advantage of our strategic relationships, established technical
know-how and access to capital.
Deal Flow
Our access to opportunities stems from a combination of experience and industry relationships
of the management team and board of directors, both within and outside of South America. Deal flow
is critical to growing a portfolio efficiently and effectively, to capitalize on our capabilities
today, and into the future as we grow in scale and our needs evolve.
Company Financial Fundamentals
A brief discussion of our financial fundamentals is provided below. Potential investors are
encouraged to read the following information in conjunction with all of the other information
provided in this filing.
Our financial results present the former Gran Tierra Canada as the predecessor company in the
share exchange with Goldstrike on November 10, 2005. The financial results of Goldstrike were
eliminated on consolidation. Gran Tierra financials therefore present the activities of the former
Gran Tierra Canada before the share exchange, including the initial Argentina acquisition on
September 1, 2005.
Financial
results for 2006 and the first half of 2007 are defined by three principal events: the Argentina acquisitions
on September 1, 2005, June 30, 2006 and December 1, 2006; the Colombia acquisition on June 20, 2006
and a series of private placements of our common stock associated with the acquisitions.
Financial results for the year ended December 31, 2006 reflect a full year of operations at
Palmar Largo, four months of operations at Nacatimbay, six months of operations at El Vinalar, and
one month of operations at Chivil, all in Argentina, in addition to six months and ten days of
operations in Colombia.
Argentina Acquisitions
We acquired participating interests in three joint ventures on September 1, 2005. We made a
formal offer to purchase the Argentina assets of Dong Won S.A (Argentinean branch of the Korean
company) on May 30, 2005, that was accepted on June 22, 2005. The total acquisition cost was
approximately $7 million. Our initial offer covered interests in five properties; preferential
acquisition rights were exercised on two properties but the major property of interest to Gran
Tierra and two minor properties became available to us. All properties are located in the
Noroeste Basin region of Northern Argentina.
39
|
o |
|
Palmar Largo Joint Venture - Gran Tierra participation 14%, Pluspetrol
(Operator) 38.15%, Repsol YPF 30%, Compañia General de Combustibles
(CGC) 17.85%. |
|
|
o |
|
Nacatimbay Concession - Gran Tierra participation 50%, CGC (Operator) 50%. |
|
|
o |
|
Ipaguazu Concession - Gran Tierra participation 50%, CGC (Operator) 50%. |
Palmar Largo is the principal property, currently producing approximately 285 barrels per day
of oil net to Gran Tierra (after 12% government royalties). Acquisition cost for Palmar Largo was
$6,969,659 which equates to $11.24 per barrel based on net reserves of 620,400 barrels of oil,
after 12% royalties. Minor volumes of natural gas and associated liquids are produced from a single
well at Nacatimbay, and the Ipaguazu property is non-producing. Total acquisition cost for these
two properties was $63,055.
On June 30, 2006, we entered into a joint venture agreement with Golden Oil Corporation
whereby we purchased 50% of the El Vinalar field in Argentina for $950,000. We also agreed to pay
the first $2.7 million in costs for a sidetrack well related to our joint venture agreement.
On February 15, 2006, we made an offer to acquire a portion of the interests of CGC in eight
properties in Argentina. On November 2, 2006, we closed the purchase of interests in four
properties for a total purchase price of $2.1 million. The assets purchased include a 93.18%
participation interest in the Valle Morado block, a 100% interest in the Santa Victoria block and
the remaining 50% interests in the Nacatimbay and Ipaguazu blocks.
On December 1, 2006, we closed the purchase of interests in two other properties from CGC,
including a 100% interest in the El Chivil block and a 100% participation interest in the Surubi
block, each located in the Noroeste Basin of Argentina, for a total purchase price of $2.5 million.
We also purchased the remaining 25% minority interest in each property from the joint venture
partner for a total purchase price of $280,000.
The total purchase price in 2006 for the acquisition of CGCs interests in all six properties
was $4.6 million. Post-closing adjustments, which reflect original values assigned to the
properties, amended terms, revenues and costs from the effective date of January 1, 2006, were
approximately $3.8 million which was paid in January 2007.
Colombia Acquisition
On June 20, 2006, we acquired all of the limited partnership interests of Argosy Energy
International (Argosy) and all of the issued and outstanding capital stock of Argosy Energy Corp.
(AEC), a Delaware corporation and the general partner of Argosy, for consideration of $37.5
million cash, 870,647 shares of our common stock and overriding and net profit interests in certain
of Argosys assets valued at $1 million. Argosys oil production averaged approximately 692 barrels
per day (after royalty) during 2006. Government royalty rates are 20% and 8% for Argosys
producing properties. Argosys net land position is approximately 331,468 acres.
Peru Acquisitions
On June 8, 2006, we signed a License Contract for the Exploration and Exploitation of
Hydrocarbons covering Block 122 in Peru. The license contract was approved by the government of
Peru on November 3, 2006. The license contract defines a seven-year exploration term divided into
four periods, each requiring a minimum work plan and financial commitment. The minimum commitment
for the first work period, which is mandatory, is $0.5 million. The potential commitment over the
seven-year period, at our option, is $5.0 million and includes technical studies, seismic
acquisition and the drilling of one exploration well. The license contract defines an exploitation
term of thirty years for commercial discoveries of oil. Block 122 is located on the eastern flank
of the Maranon Basin of northern Peru, on the crest of the Iquitos Arch and covers 1.2 million
acres.
On December 12, 2006, we signed a License Contract for the Exploration and Exploitation of
Hydrocarbons covering Block 128 in Peru. The license contract was approved by the government of
Peru. The license contract defines a seven-year exploration term divided into four periods, each
requiring a minimum work plan and financial commitment. The minimum commitment for the first work
period, which is mandatory, is $0.5 million. The potential commitment over the seven-year period,
at our option, is $3.6 million and includes technical
studies, seismic acquisition and the drilling of one exploration well. The license contract
defines an exploitation term of thirty years for commercial discoveries of oil. Block 128 is
located on the eastern flank of the Maranon Basin of northern Peru, on the crest of the Iquitos
Arch and covers 2.2 million acres.
40
Research and Development
We have not expended any resources on pursuing research and development initiatives. We use
existing technology and processes for executing our business plan.
Financing
The initial funds for Gran Tierra Canada were raised in April and June 2005, providing
approximately $1.9 million to fund our initial activities. We had no oil and gas revenue until
September 1, 2005. We made a series of private placements of common shares beginning on August 31,
2005 to fund the Argentina acquisitions and to provide general working capital.
We raised a total of approximately $12 million during the period from August 2005 to February
2006 from the issuance of approximately 15 million units consisting of one share of our common
stock at $0.80 per share plus one warrant to purchase one-half share at a total price of $1.25 per
share for a period of five years.
In June 20, 2006, we completed the sale of 50,000,000 units for gross proceeds totaling
$75,000,000, less issue costs of $6,306,699. Each unit consisted of one share of our common stock
and a warrant to purchase one-half share of our common stock for a period of five years at an
exercise price of $1.75 per whole share. During 2006 we received $1.9 million of the equity
proceeds raised during the financing that began in 2005, which impacted our 2006 cash flow results.
The Share Exchange
The share exchange between Goldstrike and the shareholders of the former Gran Tierra Canada
occurred on November 10, 2005, bringing the assets, management, business operations and business
plan of the former Gran Tierra Canada into the framework of the company formerly known as
Goldstrike Inc., a publicly traded company.
Prior Goldstrike Business
In connection with our share exchange between Goldstrike and the shareholders of Gran Tierra
Canada, Goldstrike transferred to Dr. Yenyou Zheng all of the capital stock of Goldstrike Incs
wholly-owned subsidiary, Leasco. Leasco was organized to hold mineral assets located in the
Province of British Columbia. Those assets consist primarily of 32 mineral claims covering
approximately 700 hectares. As a result of the transfer, this line of business is owned by Dr.
Yenyou Zheng, through his ownership of Leasco, and we will not pursue any of those mineral claims.
Markets, Customers and Competition
We market our own share of production in Argentina. Production from Palmar Largo is high
quality oil and is transported by pipeline and truck to a nearby refinery. The purchaser of all our
oil in Argentina is Refinor S.A. Minor volumes of natural gas and liquids from Nacatimbay were
previously sold locally. Production at Nacatimbay was suspended on March 1, 2006. All sales are
denominated in pesos but refer to reference or base prices in US dollars. Our average oil price in
Argentina averaged $34.75 per barrel net of royalties during 2006 and
$38.27 per barrel net of royalties during the first half of 2007. Sales in Argentina represented
43% of our revenues in 2006 and 41% of
our revenues during the first half of 2007.
The purchaser of all oil sold in Colombia is Ecopetrol, a government agency. Oil is eventually
exported via the Trans-Andean pipeline. Prices are defined by a multi-year contract with Ecopetrol,
with 25% of revenue received in pesos, and 75% of revenue received in US dollars. Prices averaged
$52.33 per barrel net of royalties during 2006 and $48.44 per barrel
net of royalties during the first half of 2007. Sales in Colombia
represented 57% of our revenues in 2006 and 52% of our revenues during the first half
of 2007.
The oil and gas industry is highly competitive. We face competition from both local and
international companies in acquiring properties, contracting for drilling equipment and securing
trained personnel. Many of these
competitors have financial and technical resources that exceed ours, and we believe that these
companies have a competitive advantage in these areas. Others are smaller, allowing us to leverage
our technical and financial capabilities.
41
Regulation
The oil and gas industry in South America is heavily regulated. Rights and obligations with
regard to exploration and production activities are explicit for each project; economics are
governed by a royalty/tax regime. Various government approvals are required for property
acquisitions and transfers, including, but not limited to, meeting financial and technical
qualification criteria in order to be a certified as an oil and gas company in the country. Oil and
gas concessions are typically granted for fixed terms with opportunity for extension.
In Argentina, concession rights for our principal property Palmar Largo extend to the year
2017 and may be extended an additional ten years. Oil and gas prices in Argentina are effectively
controlled and are established by decree or according to specified formulae. A tax on oil exports
sets an effective cap on prices within the country; gas prices are set by statute and reflected in
contract terms.
In Colombia, the contract for the Santana area expires in 2015, the contract for the
Guayuyaco area expires in 2030 and the contract for the Chaza area
expires in 2027. Oil prices in Colombia are related to international market prices
with pre-defined adjustments for quality and transportation. In Colombia, historically, all oil
production was from concessions granted to foreign operators or undertaken by state owned Ecopetrol
in contracts of association with foreign companies. Ecopetrol was formally responsible for all
exploration, extraction, production, transportation, and marketing oil for export. Effective
January 1, 2004, the regulatory regime in Colombia underwent a significant change with the
formation of the Agencia Nacional de Hidrocarburos, or National Hydrocarbon Agency (ANH). The ANH
is now responsible for regulating the Colombian oil industry, including managing all exploration
lands not subject to a previously existing association contract.
In Peru, state-controlled Perupetro is responsible for overall regulation and licensing of the
oil and gas industry. It also negotiates oil and gas contracts with companies to explore and/or
produce in Peru.
The pace of bureaucracy in South America tends to be slow in comparison to North American
standards and legal structures are less mature, but the overall business environment is supportive
of foreign investment and we believe is continuing to improve. Changes in regulations or shifts in
political attitudes are beyond our control and may adversely impact our business. Operations may be
affected in varying degrees by government regulations with respect to restrictions on production,
price controls, export controls, income taxes and environmental legislation.
Future Activity
We plan to continue assessing production and exploration opportunities that can provide a base
for growth. We are currently assessing opportunities in Argentina, Colombia, Peru and elsewhere in
South America which, if consummated, could substantially increase reserves and production. We would
require financing from existing cash flow, equity or debt to consummate any opportunities which may
become available, depending on the scale of the opportunity.
The totality of our business activities in Colombia, Argentina and Peru is governed by contractual
arrangements with host governments including exploration and production concessions, oil sales
agreements, joint venture agreements and other obligations. While it is not considered probable in
these countries, these contracts may be subject to re-negotiation over time which could diminish
profits compared to existing terms. A unilateral termination of contracts is considered to be
highly improbable.
42
Geographic Information
The following tables present information on our reportable geographic segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2007 |
|
Six
Months Ended June 30, 2006 |
|
|
Corporate |
|
Colombia |
|
Argentina |
|
Total |
|
Corporate |
|
Colombia |
|
Argentina |
|
Total |
|
|
Revenues |
|
$ |
596,845 |
|
|
$ |
4,290,273 |
|
|
$ |
3,379,446 |
|
|
$ |
8,266,564 |
|
|
$ |
|
|
|
$ |
460,202 |
|
|
$ |
2,679,411 |
|
|
$ |
3,139,613 |
|
Depreciation, Depletion & Accretion |
|
|
52,677 |
|
|
|
3,532,753 |
|
|
|
1,115,468 |
|
|
|
4,700,898 |
|
|
|
21,356 |
|
|
|
122,327 |
|
|
|
730,782 |
|
|
|
874,465 |
|
Segment Income (Loss) before
income tax |
|
|
(10,631,178 |
) |
|
|
(1,255,726 |
) |
|
|
(1,310,064 |
) |
|
|
(13,196,968 |
) |
|
|
(2,009,026 |
) |
|
|
174,671 |
|
|
|
181,458 |
|
|
|
(1,652,897 |
) |
Segment Capital Expenditures |
|
|
525,364 |
|
|
|
8,225,249 |
|
|
|
620,220 |
|
|
|
9,371,833 |
|
|
|
75,328 |
|
|
|
77,000 |
|
|
|
1,241,500 |
|
|
|
1,393,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ended June 30, 2007 |
|
Year ended December 31, 2006 |
|
|
Corporate |
|
Colombia |
|
Argentina |
|
Total |
|
Corporate |
|
Colombia |
|
Argentina |
|
Total |
Property, Plant &
Equipment |
|
$ |
467,917 |
|
|
$ |
40,939,141 |
|
|
$ |
19,984,132 |
|
|
$ |
61,391,190 |
|
|
$ |
387,682 |
|
|
$ |
34,053,289 |
|
|
$ |
22,266,418 |
|
|
$ |
56,707,389 |
|
Goodwill |
|
|
|
|
|
|
15,005,083 |
|
|
|
|
|
|
|
15,005,083 |
|
|
|
|
|
|
|
15,005,083 |
|
|
|
|
|
|
|
15,005,083 |
|
Total |
|
$ |
467,917 |
|
|
$ |
55,944,224 |
|
|
$ |
19,984,132 |
|
|
$ |
76,396,273 |
|
|
$ |
387,682 |
|
|
$ |
49,058,372 |
|
|
$ |
22,266,418 |
|
|
$ |
71,712,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 |
|
|
Year Ended December 31, 2005 |
|
|
Corporate |
|
Colombia |
|
Argentina |
|
Total |
|
|
Corporate |
|
Argentina |
|
Total |
|
|
|
|
Revenues |
|
$ |
351,872 |
|
|
$ |
6,612,190 |
|
|
$ |
5,108,851 |
|
|
$ |
12,072,913 |
|
|
|
$ |
|
|
|
$ |
1,059,297 |
|
|
$ |
1,059,297 |
|
Depreciation, Depletion & Accretion |
|
|
43,576 |
|
|
|
2,494,317 |
|
|
|
1,550,544 |
|
|
|
4,088,437 |
|
|
|
|
9,097 |
|
|
|
453,022 |
|
|
|
462,119 |
|
Segment Income (Loss) before
income tax |
|
|
(6,006,622 |
) |
|
|
1,394,419 |
|
|
|
(534,121 |
) |
|
|
(5,146,324 |
) |
|
|
|
(2,136,463 |
) |
|
|
(112,445 |
) |
|
|
(2,248,908 |
) |
Segment Capital Expenditures |
|
|
256,482 |
|
|
|
34,053,289 |
|
|
|
14,084,410 |
|
|
|
48,394,181 |
|
|
|
|
131,200 |
|
|
|
8,182,008 |
|
|
|
8,313,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 |
|
|
Year Ended December 31, 2005 |
|
|
Corporate |
|
Colombia |
|
Argentina |
|
Total |
|
|
Corporate |
|
Argentina |
|
Total |
|
|
|
|
Property, Plant &
Equipment |
|
$ |
387,682 |
|
|
$ |
34,053,289 |
|
|
$ |
22,266,418 |
|
|
$ |
56,707,389 |
|
|
|
$ |
131,200 |
|
|
$ |
8,182,008 |
|
|
$ |
8,313,208 |
|
Goodwill |
|
|
|
|
|
|
15,005,083 |
|
|
|
|
|
|
|
15,005,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
387,682 |
|
|
|
49,058,372 |
|
|
|
22,266,418 |
|
|
|
71,712,472 |
|
|
|
|
131,200 |
|
|
|
8,182,008 |
|
|
|
8,313,208 |
|
|
Environmental Compliance
Our activities are subject to existing laws and regulations governing environmental quality
and pollution control in the foreign countries where we maintain operations. Our activities with
respect to exploration, drilling and production from wells, natural gas facilities, including the
operation and construction of pipelines, plants and other facilities for transporting, processing,
treating or storing gas and other products, are subject to stringent environmental regulation by
provincial and federal authorities in Argentina, Colombia and Peru. Risks are inherent in oil and
gas exploration and production operations, and we can give no assurance that significant costs and
liabilities will not be incurred in connection with environmental compliance issues. We cannot
predict what effect future regulation or legislation, enforcement policies issued, and claims for
damages to property, employees, other persons and the environment resulting from our operations
could have. During 2006 we spent $95,373 in Colombia to comply with environmental standards
around water disposal. In Argentina, we spent $10,400 on environmental monitoring and water
disposal. During the first half of 2007 we spent $11,680 in Argentina on
environmental monitoring and water disposal.
Employees
At
September 30, 2007, we had 121 full-time employees eight located in the Calgary corporate
office, 24 in Buenos Aires (14 office staff and 10 field personnel)
and 89 in Colombia (18 staff
in Bogota and 71 field personnel). None of our employees are represented by labor unions, and we
consider our employee relations to be good. We had no part-time
employees at September 30, 2007.
Corporate Information
Goldstrike Inc., now known as Gran Tierra Energy Inc., was incorporated under the laws of the
State of Nevada on June 6, 2003. Our principal executive offices are located at 300, 611-10th
Avenue S.W., Calgary, Alberta, Canada. The telephone number at our principal executive office is
(403) 265-3221.
Additional Information
We are required to comply with the informational requirements of the Exchange Act, and
accordingly, we file annual reports, quarterly reports, current reports, proxy statements and other
information with the SEC. You may read or obtain a copy of these reports at the SECs public
reference room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the
operation of the public reference room and their copy charges by calling the SEC at 1-800-SEC-0330.
The SEC maintains a website that contains registration statements, reports, proxy information
statements and other information regarding registrants that file electronically with the SEC. The
address of the website is http://www.sec.gov.
43
Legal Proceedings
Ecopetrol and Argosy Energy International L.P. (Argosy), the contracting parties of the
Guayuyaco Association Contract, are engaged in a dispute regarding the interpretation of the
procedure for allocation of oil produced and sold during the long term test of the Guayuyaco-1
and Guayuyaco-2 wells. Ecopetrol has advised Argosy of a material difference in the
interpretation of the procedure established in the Clause 3.5 of Attachment-B of the Guayuyaco
Association Contract. Ecopetrol interprets the contract to provide that the extend test
production up to a value equal to 30% of the direct exploration costs of the wells is for
Ecopetrols account only and serves as reimbursement of its 30% back in to the Guayuyaco
discovery. Argosys contention is that this amount is merely the recovery of 30% of the direct
exploration costs of the wells and not exclusively for benefit of Ecopetrol. The resolution of
this issue is still pending agreement between the parties or determination through legal
proceedings. At this time no amount has been accrued in the financial statements as it is not
considered probable that a loss will be incurred. The estimated value of disputed production is
$2,361,188 which possible loss is shared 50% ($1,180,594) with Solana Petroleum Exploration
(Colombia) S.A. partner in the contract and 50% Argosy. Currently, no other legal claims or
proceedings are pending against us (a) which claim damages in excess of 10% of our current
assets, (b) which involve bankruptcy, receivership or similar proceedings, (c) which involve
federal, state or local environmental laws, or (d) which involve any of our directors,
officers, affiliates, or stockholders as a party with a material interest adverse to us. To our
knowledge, no other proceeding against us is currently contemplated by any governmental
authority.
Company Property
Offices
We currently lease office space in Calgary, Alberta; Buenos Aires, Argentina; and Bogota, Colombia.
The Calgary lease expires February 2011, and costs $6,824 per month. Our Buenos Aires, Argentina
lease expires March, 2008, with lease payments of $2,000 per month. The two Bogota, Colombia leases
expire in 2009 and 2007, respectively with costs of $696 and $2,326 per month. The properties are
in excellent condition.
44
Oil and Gas Properties-Argentina
45
Gran
Tierra lands highlighted in yellow. Other licenses in grey. Green dots are
producing oil fields, red dots are producing gas/condensate fields.
A summary of our interests in Argentina as of December 31, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Prodn |
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
Net |
|
Bbl/day |
|
Oil Reserves |
|
Lease |
|
|
Noroeste Basin |
|
Acres |
|
WI% |
|
Acres |
|
(1) |
|
MBbl (2) |
|
Expiry |
|
2007 Plans |
|
Palmar Largo
|
|
|
365,045 |
|
|
|
14 |
% |
|
|
51,106 |
|
|
|
285 |
|
|
|
422 |
|
|
|
2027 |
|
|
Ongoing production enhancements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nacatimbay (4)
|
|
|
36,623 |
|
|
|
100 |
% |
|
|
36,623 |
|
|
|
12 |
|
|
|
19 |
|
|
|
2032 |
|
|
Ongoing
production enhancements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
El Vinalar
|
|
|
248,340 |
|
|
|
50 |
% |
|
|
124,170 |
|
|
|
43 |
|
|
|
466 |
|
|
|
2026 |
|
|
Ongoing
production enhancements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chivil
|
|
|
62,518 |
|
|
|
100 |
% |
|
|
62,518 |
|
|
|
115 |
|
|
|
665 |
|
|
|
2015 |
|
|
Ongoing
production enhancements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surubi
|
|
|
90,811 |
|
|
|
100 |
% |
|
|
90,811 |
|
|
|
|
|
|
|
|
|
|
|
2026 |
|
|
Drill exploration well,
Proa-1, in second quarter 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valle Morado
|
|
|
50,019 |
|
|
|
93.2 |
% |
|
|
46,608 |
|
|
|
|
|
|
|
|
|
|
|
2033 |
|
|
No
plans for 2007,
Test production capability 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ipaguazu
|
|
|
43,268 |
|
|
|
100 |
% |
|
|
43,268 |
|
|
|
|
|
|
|
323 |
|
|
|
2026 |
|
|
Ongoing
production enhancements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Santa Victoria
|
|
|
1,033,749 |
|
|
|
100 |
% |
|
|
1,033,749 |
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
Exploration opportunities are
being evaluated |
|
Total
|
|
|
1,930,373 |
|
|
|
|
|
|
|
1,488,853 |
|
|
|
455 |
|
|
|
1,895 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Oil production is based on the average December 2006 production rate. |
|
(2) |
|
Oil reserves are proved reserves reported in thousands of barrels, net of royalties. |
|
(3) |
|
Expires in May 2008. Term is extended by 25 years if a discovery is made. |
|
(4) |
|
We produce natural gas in the Nacatimbay area. Natural gas production in December 2006 was
440 thousand cubic feet per day and total proved reserves at December 31, 2006 were 1,465
million cubic feet. |
Palmar Largo
The Palmar Largo joint venture block encompasses 365,045 acres. This asset is comprised of
several producing oil fields in the Noroeste Basin of northern Argentina. We own a 14% working
interest in the Palmar Largo joint venture asset. Approximately 41.8 million barrels of oil (gross
before royalties) have been recovered
from the area since 1984. A total of 14 gross wells are currently producing. Our share of remaining
proved reserves as of December 31, 2006 is 422,000 barrels (net after 12% royalties) according to
an independent reserve assessment. The oil quality ranges from 39 to 47 degrees API.
46
During
the first half of 2007, our 14% share of oil production averaged 275
barrels per day, net of royalties. During 2006 and 2005, our share of oil production
averaged 285 and 293 barrels per day, net of royalties, respectively.
The Palmar Largo asset provides us with a reliable stream of cash flow to finance further
exploration and development initiatives in Argentina. Our work program for 2007 involves
optimization of well performance and expenses to maximize net revenues from the property.
We purchased the assets of Palmar Largo from Dong Won Corporation in September 2005. In the
first quarter of 2006 the joint venture partners drilled and completed the Ramon Lista 1001 well,
of which we hold a 14% working interest. The recent history of the property includes the following
activities:
|
|
|
The joint venture partners at Palmar Largo conducted a 3-D seismic survey over a
portion of the area in 2003 and identified several exploration prospects. |
|
|
|
|
An exploration well was drilled in late 2005 but did not indicate commercial
quantities of oil. A portion of the drilling costs for this well was factored into our
purchase price for Palmar Largo. |
|
|
|
|
Drilling on the Ramon Lista-1001 well was completed in December 2005. Production
from the well began in early February 2006 at 299 barrels per day (gross after 12%
royalty) or 42 barrels per day net to us. No additional wells were drilled in the area
during 2006. |
The Palmar Largo block rights expire in 2017 but provide for a ten-year extension. We do not
have any outstanding work commitments. At expiry of the block rights, ownership of the producing
assets will revert to the provincial government.
Nacatimbay
We acquired a 100% working interest in the Nacatimbay area through two transactions. We
purchased a 50% working interest from Dong Won Corporation in September 2005. We purchased the
remaining 50% working interest from CGC in November 2006. Production from the Nacatimbay oil, gas
and condensate field began in 1996. Three wells were drilled and one
well produced natural gas and condensate for 120 days during 2006. The well
has been shut in since early 2007.
We continued to optimize production in this field during 2007 and explore
opportunities to re-enter the Nacatimbay 1001 and 1002 wells.
The Nacatimbay block rights expire in 2022 with a provision for a ten year extension if a
discovery is made. We do not have any outstanding work commitments. At expiry of the block rights,
ownership of the producing assets will revert to the provincial government.
Ipaguazu
We acquired a 100% working interest in the Ipaguazu area through two transactions. We
purchased a 50% working interest from Dong Won Corporation in September 2005. We purchased the
remaining 50% working interest from CGC in November 2006. Ipaguazu is located in the Noroeste Basin
in northern Argentina. The oil and gas field was discovered in 1981 and produced approximately 100
thousand barrels of oil and 400 million cubic feet of natural gas until 2003. The Ipaguazu block covers 43,268 acres and
has not been fully appraised, leaving scope for both reactivation and exploration in the future.
Currently we are evaluating a workover on the Ipaguazu-1
well.
47
The Ipaguazu block rights expire in 2016 with a ten year extension if a discovery is made. We
do not have any outstanding work commitments. At expiry of the block rights, ownership of the
producing assets will revert to the provincial government.
El Vinalar
We entered into an agreement with Golden Oil Corporation to acquire a 50% working interest in
the El Vinalar Block located in the Noroeste Basin, effective June 2006. This acquisition added a
significant new land position and approximately 43 barrels of daily oil production from 1.5 net
wells, net before royalties, to our asset base in Argentina. El Vinalar covers 248,340 acres and
contains a portfolio of exploration leads and oil field enhancement opportunities.
A sidetrack of EVN-1 well was successfully completed in December 2006, and began producing in
January 2007. Our 50% share of production, after royalties,
averaged 220 barrels per day for the first half of 2007.
The El Vinalar rights expire in 2016 with a ten year extension if a discovery is made. We do
not have any outstanding work commitments. At expiry of the block rights, ownership of the
producing assets will revert to the provincial government.
Chivil, Surubi, Valle Morado, Santa Victoria
We purchased working interests in four additional properties from CGC in November and December
2006. These properties add to our existing portfolio of exploration and development opportunities
and expand our production base in Argentina. Farm-in partners are being sought to participate in
the 2008 drilling program for the Surubi property.
Additional information on the Chivil, Surubi, Valle Morado and Santa Victoria fields follows:
|
§ |
|
The Chivil field was discovered in 1987. Three wells were drilled; two remain in
production and have averaged 100 barrels per day, net of royalties,
for the first half of 2007. The field has produced 1.5 million barrels to date. |
|
|
§ |
|
Valle Morado was first drilled in 1989. Rights to the area were purchased by Shell in
1998, who subsequently completed a 3-D seismic program over the field and constructed a gas
plant and pipeline infrastructure. Production began in 1999 from a single well, and was
shut-in in 2001 due to water incursion. We are evaluating opportunities to re-establish
production from the field in 2008. |
|
|
§ |
|
Surubi and Santa Victoria are exploration properties and have no production history. |
Reserves Summary-Argentina
Crude Oil Estimated Reserves
Net to Gran Tierra, after Royalty, at December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil 2005 |
|
|
Oil 2006 (1) |
|
|
(thousand barrels) |
|
|
(thousand barrels) |
|
|
Proved |
|
Proved |
|
Total |
|
|
Proved |
|
Proved |
|
|
|
|
Developed |
|
Undeveloped |
|
Proved |
|
|
Developed |
|
Undeveloped |
|
Total Proved |
|
|
|
|
Palmar Largo |
|
|
462 |
|
|
|
119 |
|
|
|
581 |
|
|
|
|
404 |
|
|
|
18 |
|
|
|
422 |
|
Ipaguazu |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323 |
|
|
|
|
|
|
|
323 |
|
Nacatimbay(2) |
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
19 |
|
|
|
|
|
|
|
19 |
|
El Vinalar |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191 |
|
|
|
275 |
|
|
|
466 |
|
Chivil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476 |
|
|
|
189 |
|
|
|
665 |
|
Surubi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valle Morado |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Santa Victoria |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
464 |
|
|
|
119 |
|
|
|
583 |
|
|
|
|
1,413 |
|
|
|
482 |
|
|
|
1,895 |
|
|
|
|
|
(1) |
|
Reserves certified by Gaffney, Cline and Associates, as of December 31, 2006. |
|
(2) |
|
Includes natural gas liquids |
48
Natural Gas Estimated Reserves
Net to Gran Tierra, after Royalty, at December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas 2005 |
|
Natural Gas 2006 (1) |
|
|
(million cubic feet) |
|
(million cubic feet) |
|
|
Proved |
|
Proved |
|
|
|
|
|
|
Proved |
|
Proved |
|
|
|
|
Developed |
|
Undeveloped |
|
Total Proved |
|
|
Developed |
|
Undeveloped |
|
Total Proved |
|
|
|
|
Palmar Largo |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ipaguazu |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nacatimbay |
|
|
24.5 |
|
|
|
|
|
|
|
|
24.5 |
|
|
|
|
1,465 |
|
|
|
|
|
|
|
1,465 |
|
El Vinalar |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chivil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surubi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valle Morado |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Santa Victoria |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
24.5 |
|
|
|
|
|
|
|
|
24.5 |
|
|
|
|
1,465 |
|
|
|
|
|
|
|
1,465 |
|
|
|
|
|
(1) |
|
Reserves certified by Gaffney, Cline and Associates, as of December 31, 2006. |
No estimates of proved reserves have been filed with any other Federal authority or agency
since January 1, 2006.
Production Profile Argentina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of royalties |
|
|
Oil Production (Bbls) |
|
|
Oil Price ($/Bbl) |
|
|
Oil Production Costs ($/Bbl) |
|
|
Net Revenue ($/Bbl) |
|
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Palmar Largo |
|
|
|
106,945 |
|
|
|
103,982 |
|
|
|
$ |
37.80 |
|
|
$ |
34.75 |
|
|
|
$ |
8.90 |
|
|
$ |
21.42 |
|
|
|
$ |
28.90 |
|
|
$ |
13.33 |
|
Nacatimbay |
|
|
|
1,825 |
|
|
|
|
|
|
|
$ |
37.80 |
|
|
$ |
|
|
|
|
$ |
8.90 |
|
|
$ |
|
|
|
|
$ |
28.90 |
|
|
$ |
|
|
El Vinalar |
|
|
|
|
|
|
|
7,872 |
|
|
|
|
|
|
|
$ |
53.16 |
|
|
|
$ |
|
|
|
$ |
18.49 |
|
|
|
$ |
|
|
|
$ |
34.67 |
|
Chivil |
|
|
|
|
|
|
|
3,567 |
|
|
|
|
|
|
|
$ |
51.57 |
|
|
|
$ |
|
|
|
$ |
18.49 |
|
|
|
$ |
|
|
|
$ |
33.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
108,770 |
|
|
|
115,421 |
|
|
|
$ |
37.80 |
|
|
$ |
36.53 |
|
|
|
$ |
8.90 |
|
|
$ |
21.13 |
|
|
|
$ |
28.90 |
|
|
$ |
15.40 |
|
|
|
Net of royalties |
|
|
Gas Production (Mcf) |
|
|
Gas Price ($/Mcf) |
|
|
Gas Production Costs ($/Mcf) |
|
|
Net Revenue ($/Mcf) |
|
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Palmar Largo (1) |
|
|
|
|
|
|
|
156,471 |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
Nacatimbay |
|
|
|
180,310 |
|
|
|
41,447 |
|
|
|
$ |
1.50 |
|
|
$ |
1.74 |
|
|
|
$ |
0.45 |
|
|
$ |
0.54 |
|
|
|
$ |
1.06 |
|
|
$ |
1.20 |
|
El Vinalar |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
Chivil |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
180,310 |
|
|
|
197,918 |
|
|
|
$ |
1.50 |
|
|
$ |
1.74 |
|
|
|
$ |
0.45 |
|
|
$ |
0.54 |
|
|
|
$ |
1.06 |
|
|
$ |
1.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Production of natural gas at Palmar Largo is not sold. It is used as fuel for power and gas lift for production. |
49
Acreage Argentina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GRAN TIERRA, December 31, |
Crude Oil |
|
|
Developed Gross (1) |
|
|
Developed Net (2) |
|
|
Undeveloped Gross (1) |
|
|
Undeveloped Net (2) |
|
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Palmar Largo |
|
|
|
301,700 |
|
|
|
365,045 |
|
|
|
|
42,238 |
|
|
|
51,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ipaguazu |
|
|
|
43,200 |
|
|
|
43,268 |
|
|
|
|
21,600 |
|
|
|
43,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nacatimbay |
|
|
|
36,600 |
|
|
|
36,623 |
|
|
|
|
18,300 |
|
|
|
36,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
El Vinalar |
|
|
|
|
|
|
|
248,340 |
|
|
|
|
|
|
|
|
124,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chivil |
|
|
|
|
|
|
|
62,518 |
|
|
|
|
|
|
|
|
62,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surubi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,811 |
|
|
|
|
|
|
|
|
90,811 |
|
Valle Morado |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,019 |
|
|
|
|
|
|
|
|
46,608 |
|
Santa Victoria |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,033,749 |
|
|
|
|
|
|
|
|
1,033,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
381,500 |
|
|
|
755,794 |
|
|
|
|
82,138 |
|
|
|
317,685 |
|
|
|
|
|
|
|
|
1,174,579 |
|
|
|
|
|
|
|
|
1,171,168 |
|
|
|
|
|
(1) |
|
Gross represents the total acreage at each property. |
|
(2) |
|
Net represents our interest in the total acreage at each property. |
Productive
Wells - Argentina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GRAN TIERRA, December 31, |
(Number of wells) |
|
|
Oil Productive -Net |
|
|
Oil Productive -Gross |
|
|
Gas Productive -Net |
|
|
Gas Productive -Gross |
|
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Palmar Largo |
|
|
|
2.2 |
|
|
|
2.0 |
|
|
|
|
16 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ipaguazu |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nacatimbay |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
1 |
|
|
|
1 |
|
El Vinalar |
|
|
|
|
|
|
|
1.5 |
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chivil |
|
|
|
|
|
|
|
2.0 |
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surubi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valle Morado |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Santa Victoria |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
2.2 |
|
|
|
5.5 |
|
|
|
|
16 |
|
|
|
19 |
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
1 |
|
|
|
1 |
|
|
Drilling
Activity - Argentina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productive - Gross (1) |
|
|
Productive - Net (2) |
|
|
Dry Gross (1) |
|
Dry Net (2) |
|
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
2005 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
0.14 |
|
|
|
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
0.14 |
|
|
|
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the total number of wells at which there is drilling activity. |
|
(2) |
|
Represents Gran Tierras interest in the total number of wells at which there is drilling
activity. |
50
Oil and Gas Properties-Colombia
Gran
Tierra lands highlighted in yellow. Other licenses in grey. Green dots are producing oil fields.
In June 2006, we purchased Argosy Energy International L.P. and became the operator of eight
blocks in Colombia. The Santana and Guayuyaco blocks are currently producing. The Rio Magdalena,
Talora, Chaza, Primavera, Azar and Mecaya blocks are in their exploration phases. Argosy was
subsequently renamed Gran Tierra Energy Colombia SA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves |
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
Net |
|
Oil (1) |
|
MBbl |
|
Lease |
|
|
Property |
|
Field |
|
Acreage |
|
WI% |
|
Acres |
|
Bbl/day |
|
(2) |
|
Expiry |
|
2007 Plans |
|
Santana |
|
|
|
|
1,119 |
|
|
|
35 |
% |
|
|
392 |
|
|
|
365 |
|
|
|
|
|
|
|
|
Facility & well enhancement work |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Linda |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inchiyaco |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miraflor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toroyaco |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guayuyaco |
|
|
|
|
52,365 |
|
|
|
35 |
% |
|
|
18,328 |
|
|
|
327 |
|
|
|
197 |
|
|
2030 |
|
Drilled
Juanambu-1 well. Expect commercial production in fourth quarter 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chaza |
|
|
|
|
80,241 |
|
|
|
50 |
% |
|
|
40,121 |
|
|
|
|
|
|
|
|
|
|
2027 |
|
Drilled
Costayaco-1 well. Production initiated in third quarter 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mecaya |
|
|
|
|
74,131 |
|
|
|
15 |
% |
|
|
11,120 |
|
|
|
|
|
|
|
61 |
|
|
2034 |
|
Evaluating
seismic and workover opportunities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Azar |
|
|
|
|
51,639 |
|
|
|
80 |
% |
|
|
41,311 |
|
|
|
|
|
|
|
|
|
|
2012 |
|
Evaluating
seismic; reenter existing well and drill exploration well in 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rio Magdalena |
|
|
|
|
144,670 |
|
|
|
100 |
% |
|
|
144,670 |
|
|
|
|
|
|
|
|
|
|
2030 |
|
Drill
exploration well in first quarter 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Talora |
|
|
|
|
108,336 |
|
|
|
20 |
% |
|
|
21,667 |
|
|
|
|
|
|
|
|
|
|
2032 |
|
Drilled one
exploration well. Evaluating property potential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primavera |
|
|
|
|
359,064 |
|
|
|
15 |
% |
|
|
53,860 |
|
|
|
|
|
|
|
|
|
|
2036 |
|
Drilled two
exploration wells. Relinquished second quarter of 2007 |
|
Putumayo A |
|
|
|
|
570,000 |
|
|
|
100 |
% |
|
|
570,000 |
|
|
|
|
|
|
|
|
|
|
2008 |
|
Evaluating exploration potential |
|
Putumayo B |
|
|
|
|
109,000 |
|
|
|
100 |
% |
|
|
109,000 |
|
|
|
|
|
|
|
|
|
|
2008 |
|
Filed
application to convert to exploration contract |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
1,550,565 |
|
|
|
|
|
|
|
1,010,468 |
|
|
|
692 |
|
|
|
1,095 |
|
|
|
|
|
|
|
|
|
(1) |
|
Average oil production from date of acquisition, June 21,
2006 to December 31, 2006. |
|
(2) |
|
Oil reserves are proved reserves reported in thousands of
barrels, net of royalties. |
51
Santana
The
Santana block covers 1,119 acres and includes 15 producing wells in 4 fields, Linda,
Mary, Miraflor and Toroyaco, and one non-producing field, Inchiyaco. Activities are governed by
terms of an Association Contract with Ecopetrol, and we are the operator. The properties are
subject to a 20% royalty and we hold a 35% interest in all fields with the exception of one well
located in the Mary field, where we hold a 25.83% working interest. Ecopetrol holds the remaining
interests. The block has been producing since 1991.
Oil is sold to Ecopetrol and is exported via the Trans-Andean pipeline. Oil prices are
defined by contract and are related to a West Texas Intermediate reference price. By contract, 25%
of sales are denominated in pesos and 75% in US dollars. The production contract expires in 2015,
at which time the property will be returned to the government. As a result, there will be no
reclamation costs.
In
2007, we undertook remedial work on various wells and upgraded the Mary field
water processing facility.
Guayuyaco
The Guayuyaco block covers 52,365 acres and includes the area surrounding the 4 producing
fields of the Santana contract area. The Guayuyaco block is governed by an Adjacent Play
Association Contract with Ecopetrol, resulting in a royalty of 8%. We are the operator and have a
35% participation interest. The Guayuyaco field was discovered in 2005. Two wells are now
producing, with Guayuyaco-1 commencing production in February 2005 and Guayuyaco-2 beginning
production in September 2005. Production (net of royalty) averaged 327 barrels per day from the
date of acquisition June 21, 2006 to December 31, 2006 and
177 barrels per day for the first half of 2007. Oil quality and sales terms are comparable
to Santana oil and volumes are similarly transported via the Trans-Andean pipeline for export. A
combined 2D and 3D seismic survey was acquired over the block in 2005. Ecopetrol may back-in to a
30% participation interest in any new discoveries in the block.
The contract expires in two phases: the exploration phase and the production phase. The
exploration phase expires in 2008 and the production phase expires in 2030. In March 2007, we
completed drilling the Juanambu-1 exploration well and we production
tested the well in
April and May 2007 at rates of 778 barrels per day (gross). We submitted
an application for commerciality to Ecopetrol in the third quarter of
2007. We expect commercial production from Juanambu-1 to commence
during the fourth quarter of 2007. During 2007, we performed remedial work on the Guayuyaco field. The property
will be returned to the government upon expiration of the production contract. As a result, there
will be no reclamation costs.
Rio Magdalena
Argosy Energy International L.P. entered into the Rio Magdalena Association Contract in
February 2002. The Rio Magdalena block covers 144,670 acres and is located approximately 75 km
west of Bogota, Colombia. There are no reserves at this time, as this is an exploration block. We
purchased Argosys 100% working interest in June 2006 and we are now the operator. According to
the terms of the exploration contract, we are committed to drill three exploration wells prior to
February 2008. The first of these wells, Popa-1, was drilled in late 2006 and was subsequently
plugged and abandoned after testing oil production at non-commercial rates (60 barrels per day).
The drilling for the second exploration well, Caneyes-1, began in late December 2006 and was
subsequently plugged and abandoned in February 2007. We have entered the final exploration phase,
which expires February 28, 2008. One additional exploration well will be drilled before the
contract expires. The production contract expires in 2030 at which time the property will be
returned to the government. As a result, there will be no reclamation costs.
According to the terms of the Association Contract, Ecopetrol may back-in for a 30%
participation upon commercialization, and a sliding scale royalty will apply. The royalty rate is
currently at 8%.
52
Chaza
The Chaza block covers 80,241 acres and is governed by the terms of an Exploration &
Exploitation Contract with the government agency ANH (Hydrocarbons National Agency), reflecting
improved fiscal terms in Colombia introduced in 2004. We are the operator and hold a 50%
participation interest. The Costayaco-1 exploration well was drilled
and completed in the second quarter of 2007 and was production tested
at rates of 5,906 barrels per day (gross). This well commenced
production in the third quarter of 2007 and is currently averaging
approximately 1,000 barrels per day, net of royalty. We are planning
two development wells at Costayaco based on available seismic data. We
are also acquiring 3-D seismic over the
Costayaco structure to optimize positioning of future drilling
locations. In addition, we expect to initiate planning for field
development as result of the Costayaco and Juanambu discoveries. The
new provided reserves from the Costayaco discovery are estimated at 2.7
million barrels, net of royalty. The contract for this field
expires in two phases. The exploration phase expires in 2011 and the production phase ends in
2027. The property will be returned to the government upon expiration of the production contract.
As a result, there will be no reclamation costs.
Talora
We hold a 20% working interest and are the operator for the Talora block as a result of our
acquisition of Argosy. The Exploration & Exploitation Contract associated with the block was
originally signed in September 2004, providing for a 6 year exploration period and 28 year
production period. The Talora contract area covers 108,336 acres and is located approximately 75
km west of Bogota, Colombia. There are currently no reserves, as this is an exploration block. We
commenced drilling on the Laura-1 exploration well on December 27, 2006 and it was subsequently
plugged and abandoned in January 2007. Drilling of this well has fulfilled our commitment for the
second exploration phase of the contract, which ended on December 31, 2006. The third exploration phase
has begun and there is one commitment one drill a well associated with it. The property will be
returned to the government upon expiration of the production contract. As a result, there will be
no reclamation costs.
Primavera
The Primavera Exploration & Exploitation contract was signed May 2006. The Primavera contract
area covers 359,064 acres in the Llanos basin. We are the operator
and have a 15% participation
interest. Chaco Resources also has a 55% participation interest. In
2007, we drilled two exploration wells in the Primavera area, which were both dry.
The property was relinguished in the second quarter of 2007.
Mecaya
The Mecaya Exploration & Exploitation contract was signed June 2006. The Mecaya contract area
covers 74,131 acres in southern Colombia, about 150 km southeast of Pasto. We are the operator and
have a 15% participation interest. There are currently no reserves booked for this field because
this is an exploration block. There is an indigenous population in the area and work plans may
require local consultation. In this event, phases 1 and 2 of the exploration contract will be
extended by 6 months each. The first phase has been extended to
December 2007. Work plans include
2-D seismic and reprocessing, road construction, plus re-completion of the existing Mecaya-1 well
bore. Phase two of the exploration contract expires in 2010. The production contract for this
field expires in 2034. The property will be returned to the government upon expiration of the
production contract. As a result, there will be no reclamation costs.
Azar
We acquired an 80% interest in the Azar property in late 2006. This exploration block covers
51,639 acres. We plan to acquire seismic, re-enter an existing well
and drill an exploration well in 2003. The production contract expires in 2012
for this property.
53
Reserves Summary Colombia
Crude
Oil - Estimated Reserves
Net to Gran Tierra, after Royalty, at December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil 2006 (1) (2) |
|
|
|
(thousand barrels) |
|
|
|
Proved Developed |
|
Proved Undeveloped |
|
Total Proved |
|
|
|
|
Santana |
|
|
|
838 |
|
|
|
|
|
|
|
838 |
|
Guayuyaco |
|
|
|
196 |
|
|
|
|
|
|
|
196 |
|
Chaza |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mecaya |
|
|
|
|
|
|
|
61 |
|
|
|
61 |
|
Azar |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rio Magdelene |
|
|
|
|
|
|
|
|
|
|
|
|
|
Talora |
|
|
|
|
|
|
|
|
|
|
|
|
|
Primavera |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
1,034 |
|
|
|
61 |
|
|
|
1,095 |
|
|
|
|
|
|
|
|
(1) |
|
Reserves certified by Gaffney, Cline and Associates, as of December 31, 2006. |
|
(2) |
|
We have no reserves of natural gas in Colombia. |
No estimates of proved reserves have been filed with any other Federal authority or agency
since January 1, 2006.
Production Profile Colombia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Production (Bbl) |
|
|
Oil Price ($/Bbl) |
|
|
Production Costs ($/Bbl) |
|
|
Net Revenue ($/Bbl) |
Net of Royalties |
|
2005 (1) |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
Santana |
|
|
|
|
|
|
70,746 |
|
|
|
|
|
|
|
$ |
51.59 |
|
|
|
|
|
|
|
$ |
13.50 |
|
|
|
|
|
|
|
$ |
38.09 |
|
Guayuyaco |
|
|
|
|
|
|
63,523 |
|
|
|
|
|
|
|
$ |
53.16 |
|
|
|
|
|
|
|
$ |
7.61 |
|
|
|
|
|
|
|
$ |
45.55 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
|
|
|
134,269 |
|
|
|
|
|
|
|
$ |
52.33 |
|
|
|
|
|
|
|
$ |
10.71 |
|
|
|
|
|
|
|
$ |
41.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Colombian assets were acquired June 21, 2006. |
Productive Wells Colombia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Number of wells) |
|
|
Oil Productive -Net |
|
|
Oil Productive -Gross |
|
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
|
|
|
|
|
Santana |
|
|
|
5 |
|
|
|
5 |
|
|
|
|
15 |
|
|
|
15 |
|
Guayuyaco |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
2 |
|
|
|
2 |
|
Chaza |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mecaya |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Azar |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rio Magdelene |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Talora |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primavera |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
6 |
|
|
|
6 |
|
|
|
|
17 |
|
|
|
17 |
|
|
|
|
|
|
|
|
54
Acreage Colombia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed Gross (1) |
|
|
Developed Net (2) |
|
|
Undeveloped Gross (1) |
|
|
Undeveloped Net (2) |
Crude Oil |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Santana |
|
|
|
|
|
|
|
1,119 |
|
|
|
|
|
|
|
|
392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guayuyaco |
|
|
|
|
|
|
|
52,365 |
|
|
|
|
|
|
|
|
18,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chaza |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,241 |
|
|
|
|
|
|
|
|
40,121 |
|
Mecaya |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,131 |
|
|
|
|
|
|
|
|
11,120 |
|
Azar |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,639 |
|
|
|
|
|
|
|
|
41,311 |
|
Rio Magdelena |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,670 |
|
|
|
|
|
|
|
|
144,670 |
|
Talora |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,336 |
|
|
|
|
|
|
|
|
21,667 |
|
Primavera |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
359,064 |
|
|
|
|
|
|
|
|
53,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
|
|
|
|
53,484 |
|
|
|
|
|
|
|
|
18,719 |
|
|
|
|
|
|
|
|
818,103 |
|
|
|
|
|
|
|
|
312,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Gross represents the total acreage at each property. |
|
(2) |
|
Net represents our interest in the total acreage at each property. |
Drilling Activity Colombia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productive - Gross (1) |
|
|
Productive - Net (2) |
|
|
Dry - Gross |
|
|
Dry - Net |
|
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
2005 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
1 |
|
|
|
|
|
|
|
|
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
1 |
|
Development |
|
|
|
1 |
|
|
|
|
|
|
|
|
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
2 |
|
|
|
|
|
|
|
|
0.70 |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the total number of wells at which there is
drilling activity. |
|
(2) |
|
Represents Gran Tierras interest in the total number of wells at which there is drilling
activity. |
Oil and Gas Properties Peru
Gran
Tierra lands highlighted in yellow. Other licenses in grey. Green dots are producing oil fields.
55
Blocks 122 and 128
We were awarded two exploration blocks in Peru during 2006. Block 122 covers 1,217,730 acres and
block 128 covers 2,218,503 acres. A license contract for the exploration and exploitation of
hydrocarbons is effective between Gran Tierra and PeruPetro S.A. for block 128 and 122. The blocks
are located in the eastern flank of the Maranon Basin in northern Peru, on the crest of the Iquitos
Arch. We now hold the largest working interest in this trend. Over the next 15 to 18 months, we
plan to purchase and analyze seismic data for these areas. There is a 5-20%, sliding scale,
royalty rate on the lands, dependent on production levels. The exploration contracts expire in
2014 and work commitments are defined in four exploration periods spread over seven years. There
is a financial commitment of $5 million over the seven years for each block which includes
technical studies, seismic acquisition and the drilling of exploration wells. Acquisition of
technical data is planned for the fourth quarter of 2007 to be followed by seismic work in 2008 and drilling in 2009.
The production contract expires in 2044.
Acreage Peru
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Gross (1) |
|
Undeveloped Net (2) |
|
|
2005 |
|
2006 |
|
2005 |
|
2006 |
|
Block 122 |
|
|
|
|
|
|
1,217,730 |
|
|
|
|
|
|
|
1,217,730 |
|
Block 128 |
|
|
|
|
|
|
2,218,503 |
|
|
|
|
|
|
|
2,218,503 |
|
|
TOTAL |
|
|
|
|
|
|
3,436,233 |
|
|
|
|
|
|
|
3,436,233 |
|
|
|
|
|
(1) |
|
Gross represents the total acreage of each property. |
|
(2) |
|
Net represents our interest in the total acreage of each
property. |
56
MANAGEMENT
Executive Officers and Directors
Set forth below is information regarding our directors, executive officers and key
personnel as of October 15, 2007.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
Dana Coffield
|
|
|
49 |
|
|
President and Chief Executive Officer; Director |
Martin H. Eden
|
|
|
60 |
|
|
Chief Financial Officer |
Max Wei
|
|
|
58 |
|
|
Vice President, Operations |
Rafael Orunesu
|
|
|
52 |
|
|
President, Gran Tierra Energy Argentina |
Edgar Dyes
|
|
|
62 |
|
|
President, Argosy Energy/Gran Tierra Energy Colombia |
Jeffrey Scott
|
|
|
45 |
|
|
Chairman of the Board of Directors |
Walter Dawson
|
|
|
67 |
|
|
Director |
Verne Johnson
|
|
|
63 |
|
|
Director |
Nadine C. Smith
|
|
|
50 |
|
|
Director |
Our directors and officers hold office until the earlier of their death, resignation, or
removal or until their successors have been qualified.
Dana Coffield, President, Chief Executive Officer and Director. Before joining Gran Tierra
as President, Chief Executive Officer and a Director in May, 2005, Mr. Coffield led the Middle
East Business Unit for EnCana Corporation, North Americas largest independent oil and gas
company, from 2003 through 2005. His responsibilities included business development,
exploration operations, commercial evaluations, government and partner relations, planning and
budgeting, environment/health/safety, security and management of several overseas operating
offices. From 1998 through 2003, he was New Ventures Manager for EnCanas predecessor AEC
International where he expanded activities into five new countries on three continents. Mr.
Coffield was previously with ARCO International for ten years, where he participated in
exploration and production operations in North Africa, SE Asia and Alaska. He began his career
as a mud-logger in the Texas Gulf Coast and later as a Research Assistant with the Earth
Sciences and Resources Institute where he conducted geoscience research in North Africa, the
Middle East and Latin America. Mr. Coffield has participated in the discovery of over
130,000,000 barrels of oil equivalent reserves.
Mr. Coffield graduated from the University of South Carolina with a Masters of Science
degree and a doctorate (PhD) in Geology, based on research conducted in the Oman Mountains in
Arabia and Gulf of Suez in Egypt, respectively. He has a Bachelor of Science degree in
Geological Engineering from the Colorado School of Mines. Mr. Coffield is a member of the AAPG,
the GSA and the CSPG, and is a Fellow of the Explorers Club.
Martin H. Eden, Chief Financial Officer. Mr. Eden joined our company as Chief Financial
Officer on January 2, 2007. He has over 26 years experience in accounting and finance in the
energy industry in Canada and overseas. He was Chief Financial Officer of Artumas Group Inc., a
publicly listed Canadian oil and gas company from April 2005 to December 2006 and was a
director from June to October, 2006. He has been president of Eden and Associates Ltd., a
financial consulting firm, from January 1999 to present. From October 2004 to March 2005 he was
CFO of Chariot Energy Inc., a Canadian private oil and gas company. From January 2004 to
September 2004, he was CFO of Assure Energy Inc., a publicly traded oil and gas company listed
in the United States. From January 2001 to December 2002, he was CFO of Geodyne Energy Inc., a
publicly listed Canadian oil and gas company. From 1997 to 2000, he was Controller and
subsequently CFO of Kyrgoil Corporation, a publicly listed Canadian oil and gas company with
operations in Central Asia. He spent nine years with Nexen Inc. (1986-1996), including three
years as Finance Manager for Nexens Yemen operations and six years in Nexens financial
reporting and special projects areas in its Canadian head office. Mr. Eden has worked in public
practice, including two years as an audit manager for Coopers & Lybrand in East Africa. Mr.
Eden holds a Bachelor of Science degree in Economics from Birmingham University, England, a
Masters of Business Administration from Henley Management College/Brunel University, England,
and is a member of the Institute
of Chartered Accountants of Alberta and the Institute of Chartered Accountants in England
and Wales.
57
Max Wei, Vice President, Operations. Mr. Wei is a Petroleum Engineering graduate from
University of Alberta and has twenty-five years of experience as a reservoir engineer and
project manager for oil and gas exploration and production in Canada, the US, Qatar, Bahrain,
Oman, Kuwait, Egypt, Yemen, Pakistan, Bangladesh, Russia, Netherlands, Philippines, Malaysia,
Venezuela and Ecuador, among other countries. Mr. Wei began his career with Shell Canada and
later with Imperial Oil, in Heavy Oil Operations. He moved to the US in 1986 to work with
Bechtel Petroleum Operations at Naval Petroleum Reserves in Elk Hills, California and
eventually joined Occidental Petroleum in Bakersfield. Mr. Wei returned to Canada in 2000 as
Team Leader for Qatar and Bahrain operations with AEC International and its successor, EnCana
Corporation, where he worked until 2004. He completed a project management position with
Petronas in Malaysia in April, 2005, before joining Gran Tierra in May, 2005.
Mr. Wei is specialized in reservoir engineering, project management, production
operations, field acquisition and development, and mentoring. He is a registered Professional
Engineer in the State of California and a member of the Association of Professional Engineers,
Geologists and Geophysicists of Alberta. Mr. Wei has a BSc in Petroleum Engineering from the
University of Alberta and Certification in Petroleum Engineering from Southern Alberta
Institute of Technology.
Rafael Orunesu, Vice President, Latin America. Mr. Orunesu joined Gran Tierra in March
2005 and brings a mix of operations management, project evaluation, production geology,
reservoir and production engineering as well as leadership skills to Gran Tierra, with a South
American focus. He was most recently Engineering Manager for Pluspetrol Peru, from 1997 through
2004, responsible for planning and development operations in the Peruvian North jungle. He
participated in numerous evaluation and asset purchase and sale transactions covering Latin
America and North Africa, incorporating 200,000,000 barrels of oil over a five-year period. Mr.
Orunesu was previously with Pluspetrol Argentina from 1990 to 1996 where he managed the
technical/economic evaluation of several oil fields. He began his career with YPF, initially as
a geologist in the Austral Basin of Argentina and eventually as Chief of Exploitation Geology
and Engineering for the Catriel Field in the Nuequén Basin, where he was responsible for
drilling programs, workovers and secondary recovery projects.
Mr. Orunesu has a postgraduate degree in Reservoir Engineering and Exploitation Geology
from Universidad Nacional de Buenos Aires and a degree in Geology from Universidad Nacional de
la Plata, Argentina.
Edgar Dyes, President Argosy Energy / Gran Tierra Energy Colombia. Mr. Dyes joined our
company through the acquisition of Argosy Energy International L.P., where he was Executive
Vice-President and Chief Operating Officer. His experience in the Colombian oil industry spans
twenty-one years, with the last six years in charge of Argosy Energys planning, management,
finance and administration activities. Mr. Dyes began his career with Union Texas Petroleum as
a petroleum accountant, where he eventually advanced into supervision and management positions
in international operations for the company. He subsequently worked for Quintana Energy
Corporation; Jackson Exploration, Inc.; CSX Oil and Gas; and Garnet Resources Corporation,
where he held the position of Chief Financial Officer. Mr. Dyes has worked in various financial
and management roles on projects located in the United Kingdom, Germany, Indonesia, Oman,
Brunei, Egypt, Somalia, Ecuador and Colombia. Mr. Dyes holds a Bachelors degree in Business
Management from Stephen F. Austin State University, with postgraduate studies in accounting.
Jeffrey Scott, Chairman of the Board of Directors. Mr. Scott has served as Chairman of our
board of directors since January 2005. Since 2001, Mr. Scott has served as President of Postell
Energy Co. Ltd., a privately held oil and gas producing company. He has extensive oil and gas
management experience, beginning as a production manager of Postell Energy Co. Ltd in 1985
advancing to President in 2001. Mr. Scott is also currently a Director of Saxon Energy
Services, Inc., Suroco Energy, Inc., VGS Seismic Canada Inc., and Essential Energy Services
Trust, all of which are publicly traded companies. Mr. Scott holds a Bachelor of Arts degree
from the University of Calgary, and a Masters of Business Administration from California Coast
University.
58
Walter Dawson, Director. Mr. Dawson has served as a director since January 2005. Mr.
Dawson is the founder of Saxon Energy Services, a publicly traded company since 2001, and
currently serves as Chairman of the Board of Directors of Saxon, which is an international
oilfield services company. Before his time at Saxon, Mr. Dawson served for 19 years as
President, Chief Executive Officer and a director and founded what became known as Computalog
Gearhart Ltd., which is now an operating division of Precision Drilling Corp. Computalogs
primary businesses are oil and gas logging, perforating, directional drilling and fishing
tools. Mr. Dawson instituted a technology center at Computalog, located in Fort Worth, Texas, a
developer of electronics designed to develop wellbore logging tools. In 1993 Mr. Dawson founded
what became known as Enserco Energy Services Company Inc., formerly Bonus Resource Services
Corp. Enserco entered the well servicing businesses through the acquisition of 26 independent
Canadian service rig operators. Mr. Dawson is currently a director of VGS Seismic Canada Inc.,
Suroco Energy, Inc. and Action Energy Inc. (formerly High Plains Energy Inc.) all of which are
publicly traded companies.
Verne Johnson, Director. Mr. Johnson has served as a director since April 2005. Starting
with Imperial Oil in 1966, he has spent his entire career in the petroleum industry, primarily
in western Canada, contributing to the growth of oil and gas companies of various sizes. He
worked with Imperial Oil Limited until 1981 (including two years with Exxon Corporation in New
York from 1977 to 1979). From 1981 to 2000, Mr. Johnson served in senior capacities with
companies such as Paragon Petroleum Ltd., ELAN Energy Inc., Ziff Energy Group and Enerplus
Resources Group. He was President and Chief Executive Officer of ELAN Energy Inc., President of
Paragon Petroleum and Senior Vice President of Enerplus Resources Group until February 2002.
Mr. Johnson retired in February 2002. Mr. Johnson is a director of Fort Chicago Energy Partners
LP, Harvest Energy Trust, Blue Mountain Energy Ltd., Builders Energy Services Trust and
Mystique Energy, all publicly traded companies. Mr. Johnson received a Bachelor of Science
degree in Mechanical Engineering from the University of Manitoba in 1966. He is currently
president of his private family company, KristErin Resources Ltd.
Nadine C. Smith, Director. Ms. Smith has served as a director since January 10, 2006. She
has served as a director of Patterson-UTI, which is traded on NASDAQ, since May 2001 and served
as a director of UTI from 1995 to May 2001. Ms. Smith is also a director of American Retirement
Corporation, a New York Stock Exchange listed company that owns and manages senior housing
properties. From August 2000 to December 2001, Ms. Smith was President of Final Arrangements,
LLC, a company providing software and web-based internet services to the funeral industry. From
April 2000 to August 2000, she served as the President of Aegis Asset Management, Inc., an
asset management company. From 1997 to April 2000, Ms. Smith was President and Chief Executive
Officer of Enidan Capital Corp., an investment company. Previously, Ms. Smith was an investment
banker and principal with NC Smith & Co. and The First Boston Corporation and a management
consultant with McKinsey & Co. Ms. Smith holds a Bachelor of Science degree in economics from
Smith College and a Masters of Business Administration from Yale University.
Our above-listed officers and directors have neither been convicted in any criminal
proceeding during the past five years nor been parties to any judicial or administrative
proceeding during the past five years that resulted in a judgment, decree or final order
enjoining them from future violations of, or prohibiting activities subject to, federal or
state securities laws or a finding of any violation of federal or state securities law or
commodities law. Similarly, no bankruptcy petitions have been filed by or against any business
or property of any of our directors or officers, nor has any bankruptcy petition been filed
against a partnership or business association in which these persons were general partners or
executive officers.
59
Our board of directors consists of six directors and includes two committees: an
audit committee and a compensation committee. We adhere to the Nasdaq Marketplace Rules in
determining whether a director is independent and our board of directors has determined that
four of our six directors, Messrs. Scott, Johnson and Dawson and Ms. Smith, are independent
within the meaning of Rule 4200(a)(15) of the NASDs published listing standards.
Compensation Discussion and Analysis
All dollar amounts discussed below are in U.S. dollars. To the extent that contractual
amounts are in Canadian dollars, they have been converted into US dollars for the purposes of the
discussion below at an exchange rate of one Canadian dollar to US $0.8581, which is the conversion
rate at December 31, 2006.
Compensation Objectives
The overall objectives of our compensation program are to attract and retain key executives
who are the best suited to make our company successful and to reward individual performance to
motivate our executives to accomplish our goals.
Compensation Process
The Compensation Committee recommends amounts of compensation for the Chief Executive Officer
for approval by our board of directors. Our Chief Executive Officer recommends amounts of
compensation for our other executive officers to our Compensation Committee, which considers these
recommendations in connection with the goals and criteria discussed below. The Compensation
Committee then makes its determination, taking our Chief Executive Officers recommendations into
account, and makes its recommendations to our board of directors for approval.
Our practice is to consider compensation annually (at year-end), including the award of equity
based compensation. Our Compensation Committee is currently defining items of corporate performance
to be considered in future compensation, which it expects will include budget targets (production,
reserves, capital expenditures, operating costs), financial measures (e.g., liquidity) and share
price performance, in addition to other objectives. Our compensation practices to date have been
largely discretionary but within an increasingly formalized framework. Our Compensation Committee
intends to define elements of personal performance by the achievement of agreed objectives. This
process is expected to be initiated by the Chief Executive Officer, whose objectives will be
documented and accepted by the board of directors. Objectives for the remaining executives are
within the context of the Chief Executive Officers objectives and include other, more specific
goals. This process has been initiated for 2007.
Elements of Compensation
Our Compensation Committee, which consists of three non-executive directors, has determined
that we shall have three basic elements of compensation base salary, cash bonus and equity
incentives. Each component has a different purpose.
We believe that base salaries at this stage in our growth must be competitive in order to
retain our executive. We believe that principal performance incentives should be in the form of
long-term equity incentives given the financial resources of our company and the longer-term nature
of our business plan. Long-term incentives to date have been in the form of stock options but our
equity incentive plan also provides for other incentive forms, such as restricted stock and stock
bonuses, which the Compensation Committee is not considering at this time. Short-term cash bonuses
are a common element of compensation in our industry and among our peers to which we must pay
attention, but our ability and desire to use cash bonuses are closely tied to the immediate cash
resources of our company. The Compensation Committee ultimately considers the split between the
three forms of compensation relative to our peers for each position, relative to the contributions
of each executive, and the operational and financial achievements of our company and our financial
resources. This exercise has been based on consensus among the members of the Compensation
Committee.
Executive compensation through 2005 and the first part of 2006 was sufficient to attract and
retain our management team but had fallen significantly behind industry norms by the end of 2006
and as our company grew beyond a start-up phase. In late-2006, the Compensation Committee
determined that it was necessary to review compensation and subscribed to the compensation survey
described below as a starting point for a more structured and competitive compensation process. Our
goal is to provide competitive compensation and an appropriate
60
compensation structure for an emerging oil and gas company relative to our stage of growth,
financial resources and success.
Third Party Source Used
In late 2006, we subscribed to the 2006 Mercer Total Compensation Survey for the Petroleum
Industry, which covers oil and gas companies located in Canada, and which presents compensation
components and statistical ranges by position description for peer groupings within the industry.
The survey is published annually and is widely recognized as a leading survey of its kind in
Canada.
The survey provider is Mercer Human Resource Consulting. The primary purpose of the survey is
to collect and consolidate meaningful data on salaries and benefits in the oil and gas industry in
Canada, including those with international operations. The original survey participants were 158
companies in the oil and gas industry based in Canada, including those with international
operations. The survey divided the 158 companies into six peer groups based on relative levels of
production and revenues. There are 48 companies in our peer group with average production between
1,000 and 4,000 barrels of oil equivalent per day, including those with international operations.
The results of the survey and the participants are confidential and cannot be disclosed in
accordance with the confidentiality agreement signed with the survey provider.
Salary
Salary amounts for our executive officers for 2006 was pre-determined based on
individually-negotiated agreements with each of the executive officers when they joined our
company. Prior to November 2005, we were a private Canadian company incorporated in January 2005.
For 2005 and for 2006, the four inaugural executives of our company received the same base salary
of approximately $150,000 per year. Rafael Orunesu, who is President of our operations in
Argentina, was the first hire of our company in March 2005. Mr. Orunesu negotiated his employment
agreement directly with our board of directors. Dana Coffield, James Hart and Max Wei, who are
located in Calgary, joined Gran Tierra in May 2005 and collectively negotiated terms of their
employment with our board of directors. As a start-up company with limited financial resources,
base salary in all instances was a discount to prior base salaries for each executive at their
previous employer. All executives agreed to the same base compensation to reflect the team nature
of the venture. All signed employment agreements outlined the potential for base salary increases,
equity incentives and cash bonuses if deemed appropriate by the board of directors. The agreements
did not specify the amount or any criteria for determining the bonuses and equity incentives, and
so these determinations may be made by our board of directors in its sole discretion. The
executives purchased founding shares to substantiate their commitment to our company and provide
additional financial incentives.
In April 2006, Mr. Dyes became our President, Argosy Energy/Gran Tierra Energy Colombia. He
too negotiated his employment agreement, which provided for his annual base salary of $105,000 plus
an annual supplemental salary of up to $42,000, the exact amount to be determined by the amount of
time that he spends in Colombia in excess of what is required under the employment agreement. This
agreement, too, did not specify the amount or any criteria for determining the bonuses and equity
incentives, and so these determinations may be made by our board of directors in its sole
discretion.
In January 2007, Mr. Eden became our Chief Financial Officer. The terms of Mr. Edens
employment agreement were individually negotiated by Mr. Eden, and are described below in
Agreements with Executive Officers. The agreement did not specify the amount or any criteria for
determining the bonuses and equity incentives, and so these determinations may be made by our board
of directors in its sole discretion.
For 2007, the Compensation Committee recommended to the board of directors, and our board of
directors approved, modest increases to the salaries of our executive officers, so that their
annual salaries for 2007 will be as follows:
Mr. Coffield $214,525
Mr. Hart $193,073
Mr. Wei $171,620
Mr. Orunesu $180,000
Mr. Dyes $180,000
61
These base salaries were determined by our Compensation Committee based upon its review of the
Mercer survey, targeting the 50th 75th percentile as being appropriate to
retain the services of our executives, the exact amount determined by the Compensation Committees
subjective assessment of the appropriate salary for each executive given their performance and
roles within our company.
Bonus
No cash bonuses were paid to our executives for 2005 as this was deemed inappropriate by
mutual agreement of our board of directors and our executives for our first year of operation.
In 2006, our Compensation Committee used the Mercer survey to establish bonuses for our
executives. In doing so, the Compensation Committee targeted the 50th 75th
percentile for the position within the peer group for the industry as being appropriate to retain
the services of our executives. In doing so, the Compensation Committee did not use any
pre-determined criteria or formulas, but rather based its decisions within that range based on its
subjective assessment of the executives contribution to our company, our companys operational and
financial results, and our financial resources, taken as a whole.
For 2007 we are in the process of implementing a more objective approach but our Compensation
Committee has not finalized items of corporate performance to be considered for 2007. These
benchmarks are likely to include various operating and financial measures, but the specific
measures for corporate performance and weighting of all measures have not been determined.
Target bonuses for 2007 for our executive officers have not been set for 2007.
Individual objectives have been defined for 2007 as follows:
Chief Executive Officer The principal objectives for our Chief Executive Officer and
President, which have been recommended by our Compensation Committee and approved by our board of
directors, are as follows:
|
|
|
Execute approved $13.5 million capital expenditure work program (within +/- 10% of budget) which
includes the drilling of 10 exploration wells, 8 in Colombia and 2 in Argentina. |
|
|
|
|
Exit 2007 at production rate of 2,000 barrels of oil per day, net after royalty |
|
|
|
|
Add 2.9 million barrels of proven, probable and possible oil reserves |
|
|
|
|
Maintain direct finding costs for new oil reserves at $4.67 per barrel |
|
|
|
|
Reduce general and administration costs by 10% on a barrel of oil produced basis |
|
|
|
|
Reduce operating costs by 10% per barrel of oil produced |
|
|
|
|
Environment Health Safety and Security meet or exceed relevant industry
standards; target zero lost time incidents |
|
|
|
|
Ensure all regulatory and financial commitments with host government agencies
are met |
|
|
|
|
Ensure, with Chief Financial Officer, that all financial reporting, controls and
procedures, budgeting and forecasting, and corporate governance requirements are
identified and maintained |
|
|
|
|
Move Gran Tierra off OTC Bulletin Board to senior exchange |
|
|
|
|
Resolve current registration statement and associated penalty issues |
|
|
|
|
Revise our strategy and position to execute next step change in growth |
|
|
|
|
Increase both personal and Gran Tierra exposure to current and potential new shareholder base |
Chief Financial Officer The principal objectives for our Chief Financial Officer are as follows:
|
|
|
Maintain, develop and enhance management and financial reporting systems |
|
|
|
|
Develop and enhance budgeting and forecasting systems |
|
|
|
|
Assist our Chief Executive Officer in developing corporate strategy and long-term plan |
62
|
|
|
Ensure compliance with Sarbanes Oxley requirements, including implementation of
corporate governance, internal controls and financial disclosure controls |
|
|
|
|
Secure additional sources of financing as required |
|
|
|
|
Assist our Chief Executive Officer in developing and implementing an investor
relations strategy |
|
|
|
|
Address tax planning strategies |
|
|
|
|
Assist our Chief Executive Officer in developing administration and human resources function |
Vice-President, Operations The principal objectives for the Vice-President, Operations are:
|
|
|
Exit 2007 at 2,000 barrels of oil per day, net after royalty |
|
|
|
|
Add 2.9 million barrels of proven, probable and possible oil reserves |
|
|
|
|
Reduce operating costs by 10% per barrel of oil produced |
|
|
|
|
Meet or exceed relevant Environment Health Safety and Security industry
standards, targeting zero lost time incidents |
|
|
|
|
Design, implement, test and monitor emergency response plans for all operating arenas |
|
|
|
|
Complete 2007 drilling/workover program within budget and without incidents |
|
|
|
|
Design and manage peer review of all proposed drilling, production and facility
upgrade projects, ensuring standardized commercial evaluations are undertaken for
each |
|
|
|
|
Design and manage post-mortem reviews of all drilling, production and facility
upgrade projects, explaining any deviations from plan or budget, and distributing
learnings to peers for integration into future projects |
|
|
|
|
Identify opportunities from current portfolio of exploration and development
leads on our existing land base for 2008 drilling |
|
|
|
|
Ensure integration of all IT (Information Technology) applications and hardware
in all our operating offices |
President, Gran Tierra Energy Colombia and the President, Gran Tierra Argentina The
principal objectives for the President, Gran Tierra Energy Colombia and the President, Gran
Tierra Argentina for 2007 have been defined in context of the 2007 Budget, which defines a
work program, capital expenditure budget and operating results for the year. No personal
objectives have been defined at this time.
The weighting of all of the individual performance goals have not been determined, nor has the
percentage contribution of the individual performance goals to bonus determination been determined,
but will be set prior to the end of 2007.
Equity Incentives
In November 2005, an equal number of stock options (162,500) were granted to each executive
officer then with our company when we became a public company and under the terms of our 2005
Equity Incentive Plan. These awards were deemed appropriate by our board of directors based on its
subjective assessment as to the appropriate level, and were equal to reflect the equal
contributions of each executive. No options had been granted prior to this time.
In November 2006, our Compensation Committee granted options to each of our executive officers
as follows: Mr. Coffield, 200,000 shares; Mr. Hart, 125,000 shares; Mr. Wei, 100,000 shares; Mr.
Orunesu, 100,000 shares; and Mr. Dyes, 100,000 shares. The Compensation Committee determined the
level of these awards based on the Mercer survey, again targeting the 50th -
75th percentile for the position within the peer group for the industry based on value
according to a Black-Scholes calculation. In doing so, the Compensation Committee did not use any
pre-determined criteria or formulas, but rather based its decisions within that range based on its
subjective assessment of the appropriate incentive level given the executives respective roles in
our company.
In connection with Mr. Eden joining our company, our Compensation Committee granted him an
option to purchase 225,000 shares of our common stock. The amount of the stock options was
negotiated with Mr. Eden in connection with the negotiation of his employment agreement.
63
Termination and Change in Control Provisions
Our employment agreements with our executive officers contain termination and change in
control provisions. These provisions provide that our executive officers will receive severance
payments in the event that their employment is terminated other than for cause or if they
terminate their employment with us for good reason, as discussed in Agreements with Executive
Officers below. The termination and change-in control provisions are industry standard clauses
reached with the executives in arms-length negotiations at the time that they entered into the
employment agreements with us.
64
Summary Compensation Table
All
dollar amounts set forth in the following tables reflecting executive
officer and director compensation are in U.S. dollars.
The following table shows for the fiscal year ended December 31, 2006, compensation awarded to
or paid to, or earned by, our Chief Executive Officer, Chief Financial Officer and our three other
most highly compensated executive officers at December 31, 2006 (the Named Executive Officers):
65
Summary Compensation Table for Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
All Other |
|
|
principal |
|
|
|
|
|
Salary ($) |
|
Bonus |
|
Awards |
|
Compensation ($) |
|
|
position |
|
Year |
|
(1) |
|
($) |
|
($) (2)(3) |
|
(4) |
|
Total ($) |
|
Dana Coffield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President and
Chief Executive
Officer
|
|
|
2006 |
|
|
$ |
154,458 |
|
|
$ |
92,250 |
|
|
$ |
23,400 |
|
|
|
|
|
|
$ |
270,108 |
|
James Hart Former
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice
President, Finance
and Chief Financial
Officer
|
|
|
2006 |
|
|
$ |
154,458 |
|
|
$ |
92,250 |
|
|
$ |
14,625 |
|
|
|
|
|
|
$ |
261,133 |
|
Rafael Orunesu
President, Gran
Tierra Argentina
|
|
|
2006 |
|
|
$ |
150,000 |
|
|
$ |
42,907 |
|
|
$ |
11,700 |
|
|
$ |
9,200 |
|
|
$ |
213,807 |
|
Max Wei
Vice President,
Operations
|
|
|
2006 |
|
|
$ |
154,458 |
|
|
$ |
42,907 |
|
|
$ |
17,503 |
|
|
|
|
|
|
$ |
214,868 |
|
Edgar Dyes
President, Argosy
Energy/Gran Tierra
Energy Columbia
|
|
|
2006 |
|
|
$ |
138,750 |
|
|
$ |
25,000 |
|
|
|
|
|
|
|
|
|
|
$ |
163,750 |
|
|
|
|
(1) |
|
Dana Coffield and James Hart salaries and bonus are paid in Canadian dollars and
converted into US dollars for the purposes of the above table at the December 31, 2006
exchange rate of one Canadian dollar to US $0.8581. |
|
(2) |
|
Granted under terms of our 2005 Equity Incentive Plan. |
|
(3) |
|
Assumptions made in the valuation of stock options granted are discussed in Note 6 to
our 2006 Consolidated Financial Statements. Reflects the dollar amount recognized for
financial statement reporting purposes with respect to the fiscal year in accordance with
FAS 123R, disregarding estimates of forfeiture. |
|
(4) |
|
Cost of living allowance. |
Grants of Plan-Based Awards
The following table shows for the fiscal year ended December 31, 2006, certain information
regarding grants of plan-based awards to the Named Executive Officers:
Grants of Plan-Based Awards in Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Option Awards: |
|
|
|
|
|
Grant Date Fair Value of |
|
|
|
|
Number of Securities |
|
Exercise or Base Price of |
|
Stock and Option |
|
|
|
|
Underlying Options |
|
Option Awards |
|
Awards |
Name |
|
Grant Date |
|
(#) |
|
($/Sh) |
|
($)(1) |
Mr. Coffield
|
|
11/8/2006
|
|
|
200,000 |
|
|
|
1.27 |
|
|
$ |
84,080 |
|
Mr. Hart
|
|
11/8/2006
|
|
|
125,000 |
|
|
|
1.27 |
|
|
$ |
52,550 |
|
Mr. Wei
|
|
11/8/2006
|
|
|
100,000 |
|
|
|
1.27 |
|
|
$ |
42,550 |
|
Mr. Orunesu
|
|
11/8/2006
|
|
|
100,000 |
|
|
|
1.27 |
|
|
$ |
42,550 |
|
Mr. Dyes
|
|
11/8/2006
|
|
|
100,000 |
|
|
|
1.27 |
|
|
$ |
42,550 |
|
|
|
|
(1) |
|
Represents the grant date fair value of such option award as determined in accordance with
SFAS 123R. These amounts have been calculated in accordance with SFAS No. 123R using the Black
Scholes valuation model. |
66
Agreements with Executive Officers
We have entered into executive employment agreements with all members of our current
management team. The employment agreements entered into between Gran Tierra and Dana Coffield,
James Hart and Max Wei have identical terms except for the position held by each such person and
terms related to participation on the board of directors for Mr. Coffield and Mr. Hart. The
respective employment agreements provide for an initial annual base salary of CDN$180,000 ($154,458
US dollars) and provide (a) for the executive to receive an annual
bonus as determined by our board of directors, and (b) the right to
participate in our stock option plans in the event of an initial
public offering of our common stock. The bonuses are to be paid
within 60 days of the end of the preceding year based on the
executive performance. The agreements do not provide for any criteria
for determining the magnitude of the bonuses and option grants and,
therefore, the determination of the bonuses and grants are in the
sole discretion of the board of directors, using the criteria the
board of directors deem appropriate.
The executives
employment agreements became effective on May 1, 2005 and have initial terms of three-years,
subject to extension or earlier termination and provide for severance payments to each employee, in
the event the employee is terminated without cause or the employee terminates the agreement for
good reason, in the amount of two times total compensation for the prior year. Good reason
includes an adverse change in the executives position, title, duties or responsibilities, or any
failure to re-elect him to such position (except for termination for cause). Initial contract
terms for Messrs. Coffield, Hart and Wei included rights to purchase 200,000 shares of our common
stock before an initial public offering. These rights have been removed, with the mutual consent of
Gran Tierra and the applicable executives. All agreements include standard indemnity, insurance,
non-competition and confidentiality provisions.
We
have also entered into an employment agreement with Mr. Orunesu,
through our Ecudorian subsidiary which provides for an
initial annual base salary of $150,000, annual bonuses and options as
may be determined by the board of directors in its sole discretion. The
contract includes provision for payment of a cost of living adjustment of $55,200 per year. The
agreement became effective on March 1, 2005 and has an initial
term of two years, which is subject to extension or earlier termination. The agreement provides for severance
payments in the event of the employees termination without cause or for good reason, in an amount
equal to the salary payable under the employment agreement during any remaining time in the initial
two year term. Initial rights provided in Mr. Orunesus agreement, to purchase 200,000 shares of
our common stock before an initial public offering, have since been removed with mutual consent of
us and Mr. Orunesu.
We entered into an employment agreement with Mr. Dyes, President of Gran Tierra Colombia,
formerly Argosy Energy International, which provides for an initial base salary of $108,000 per
year plus a supplemental amount of up to $42,000 per year if he
provides services in excess of 15 days per month in Colombia. In
addition, the agreement provides for an annual bonus along the same
terms as described above for Messrs. Coffield, Hart and Wei, as well
as the right to participate in our companys stock option plans,
without specifying the amount or criteria used. The contract became effective on April 1, 2006
and terminates on April 1, 2008. Mr. Dyes also receives reasonable living expenses while performing
his duties in Colombia. The agreement provides for severance payments equal to the amount of base
salary plus bonus received for the prior 12-month period in the event of termination without cause,
termination for good reason or termination for disability, prorated
for the remaining term of the agreement, payable within 30 days.
On December 1, 2006, we entered into an executive employment agreement with Mr. Eden that
provides for an initial annual base salary of CDN$ 225,000 ($193,073)
In addition, the agreement provides for an annual bonus along the
same terms as described above of Messrs. Coffield, Hart and Wei, as
well as the right to participate in our companys stock option
plans, without specifying the amount of criteria used. Mr. Edens employment agreement became effective on
January 2, 2007 and has an initial term of three years, subject to extension or earlier termination
and provides for severance payments, in the event he is terminated without cause or terminates the
agreement for good reason, in the amount of the greater of total cash
compensation of the remaining term and one years total cash
compensation, with total cash compensation meaning annualized salary
plus bonus for the prior 12-month period.
Good reason includes an adverse change in the Mr. Edens position, title, duties or
responsibilities, or any failure to re-elect him to such position (except for termination for
cause). Mr. Edens employment agreement includes customary indemnity, insurance, non-competition
and confidentiality provisions.
Outstanding Equity Awards at Fiscal year -end.
The following table shows for the fiscal year ended December 31, 2006, certain information
regarding outstanding equity awards at fiscal year end for the Named Executive Officers.
The following table provides
information concerning unexercised options for each Named Executive,
based on the executives performance
Officer outstanding as of December 31, 2006.
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
Number of Securities |
|
|
|
|
|
|
Underlying |
|
Underlying Unexercised |
|
|
|
|
|
|
Unexercised Options |
|
Options |
|
|
|
|
|
|
(#) |
|
(#) |
|
Option Exercise Price |
|
Option Expiration |
Name |
|
Exercisable |
|
Unexercisable |
|
($) |
|
Date |
|
Dana Coffield |
|
|
54,167 |
(1) |
|
|
108,333 |
(2) |
|
$ |
0.80 |
|
|
|
11/10/2015 |
|
|
|
|
|
|
|
|
200,000 |
(3) |
|
$ |
1.27 |
|
|
|
11/8/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Hart |
|
|
54,167 |
(1) |
|
|
108,333 |
(2) |
|
$ |
0.80 |
|
|
|
11/10/2015 |
|
|
|
|
|
|
|
|
125,000 |
(3) |
|
$ |
1.27 |
|
|
|
11/8/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Max Wei |
|
|
54,167 |
(1) |
|
|
108,333 |
(2) |
|
$ |
0.80 |
|
|
|
11/10/2015 |
|
|
|
|
|
|
|
|
100,000 |
(3) |
|
$ |
1.27 |
|
|
|
11/8/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rafael Orunesu |
|
|
54,167 |
(1) |
|
|
108,333 |
(2) |
|
$ |
0.80 |
|
|
|
11/10/2015 |
|
|
|
|
|
|
|
|
100,000 |
(3) |
|
$ |
1.27 |
|
|
|
11/8/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edgar Dyes |
|
|
|
|
|
|
100,000 |
(3) |
|
$ |
1.27 |
|
|
|
11/8/2016 |
|
|
|
|
(1) |
|
The right to exercise the shares reported in this column vested on November 10, 2006. |
|
(2) |
|
The right to exercise one-half of the shares reported in this column will vest on November 10,
2007 and November 10, 2008, in each such case if the option holder is still employed by Gran Tierra
on such date. |
|
(3) |
|
The right to exercise one-third of the shares reported in this column will vest on each of
November 8, 2007, November 8, 2009 and November 8, 2010. |
Potential Payouts Upon Termination or Change in Control
In the event of a termination for good reason including a change in control of the company,
Messrs. Coffield, Hart and Wei are eligible to receive a payment of two times prior year total
compensation. Payment to Mr. Orunesu is equal to salary payable under the agreement from the time
of the event to the remaining term of the contract. Payment to Mr. Dyes is equal to prior year
compensation. If a change of control had occurred on December 31, 2006, and our named executive
officers terminated for good reason, or if they were terminated other than for cause, they would
have received the following payments:
|
|
|
|
|
Name |
|
Payment |
Mr. Coffield
|
|
$ |
493,416 |
|
Mr. Hart
|
|
$ |
493,416 |
|
Mr. Wei
|
|
$ |
394,730 |
|
Mr. Orunesu
|
|
$ |
37,500 |
|
Mr. Dyes
|
|
$ |
163,750 |
|
Subsequent
to December 31, 2006, Mr. Hart resigned as an employee of our company
and, therefore, is not entitled to receive any payments under these
arrangements.
68
Director Compensation
|
|
|
|
|
|
|
|
|
Name |
|
Option Awards ($)(1) |
|
Total ($) |
|
Jeffrey Scott
|
|
$ |
16,156 |
|
|
$ |
16,156 |
|
Walter Dawson
|
|
$ |
10,771 |
|
|
$ |
10,771 |
|
Verne Johnson
|
|
$ |
10,771 |
|
|
$ |
10,771 |
|
Nadine C. Smith
|
|
$ |
10,771 |
|
|
$ |
10,771 |
|
|
(1) |
|
The stock options were granted under terms of our 2005 Equity Incentive Plan in 2005.
Assumptions made in the valuation of stock options granted are discussed in Note 6 to our 2006
Consolidated Financial Statements. Reflects the dollar amount recognized for financial statement
reporting purposes with respect to the fiscal year in accordance with FAS 123R, disregarding
estimates of forfeiture. |
There were no compensation arrangements in place in 2006 for the members of our board of
directors who are not also our employees. In 2007, we intend to pay a fee of $12,872 per year to
each director who serves on our board of directors and an additional $12,872 per year for the
chairman of our board of directors. We will also pay an additional fee of $6,436 per year for each
committee chair and a fee of $644 for each meeting attended. Directors who are not our employees
are eligible to receive awards under our 2005 Equity Incentive Plan. Compensation arrangements with
the directors who are also our employees are described in the preceding sections of this prospectus
under the heading Executive Compensation.
Compensation Committee Interlocks and Insider participation
Our Compensation Committee currently consists of Mr. Johnson, Mr. Scott and Mr. Dawson. None
of the members of our Compensation Committee has at any time been an officer or employee of Gran
Tierra. No member of our Board or our Compensation Committee served as an executive officer of
another entity that had one or more of our executive officers serving as a member of that entitys
board or compensation committee.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership of our common stock
as of August 13, 2007 by (1) each person who, to our knowledge, beneficially owns more than 5% of
the outstanding shares of the common stock; (2) each of our directors and officers; and (3) all of
our executive officers and directors as a group. Unless otherwise indicated in the footnotes to the
following table, each person named in the table has sole voting and investment power and that
persons address is 300, 611-10th Avenue, S.W., Calgary, Alberta, Canada, T2R 0B2.
Shares of common stock subject to options or warrants currently exercisable or exercisable within
60 days following August 13, 2007 are deemed outstanding for computing the share ownership and
percentage of the person holding such options and warrants, but are not deemed outstanding for
computing the percentage of any other person. All share numbers and ownership percentage
calculations below assume that all Exchangeable Shares of Goldstrike Exchange Co. have been
converted on a one-for-one basis into corresponding shares of our common stock.
69
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature of |
|
|
Name and Address of Beneficial Owner (1) |
|
Beneficial Ownership |
|
Percentage of Class |
Dana Coffield (2) |
|
|
1,888,829 |
|
|
|
1.99 |
% |
James Hart (3) |
|
|
1,743,850 |
|
|
|
1.84 |
% |
Max Wei (4) |
|
|
1,783,834 |
|
|
|
1.88 |
% |
Rafael Orunesu (5) |
|
|
1,863,850 |
|
|
|
1.97 |
% |
Edgar Dyes |
|
|
|
|
|
|
|
|
Jeffrey Scott (6) |
|
|
2,563,861 |
|
|
|
2.70 |
% |
Walter Dawson (7) |
|
|
3,005,952 |
|
|
|
3.16 |
% |
Verne Johnson (8) |
|
|
1,662,884 |
|
|
|
1.75 |
% |
Nadine C. Smith (9) |
|
|
2,099,094 |
|
|
|
2.21 |
% |
Greywolf Capital Management LP (10) |
|
|
10,142,001 |
|
|
|
10.35 |
% |
Millennium Global Investments Limited (11) |
|
|
5,002,500 |
|
|
|
5.19 |
% |
US Global Investors, Inc. (12) |
|
|
5,858,675 |
|
|
|
6.08 |
% |
Directors and officers as a group (total of 10 persons) (13) |
|
|
16,612,154 |
|
|
|
17.26 |
% |
|
|
|
(1) |
|
Beneficial ownership is calculated based on 94,674,410 shares of common stock issued and
outstanding as of August 13, 2007, which number includes shares of common stock issuable upon the
exchange of the exchangeable shares of Goldstrike Exchange Co. issued to certain former holders of
Gran Tierra Canadas common stock. Beneficial ownership is determined in accordance with Rule 13d-3
of the SEC. The number of shares beneficially owned by a person includes shares of common stock
underlying options or warrants held by that person that are currently exercisable or exercisable
within 60 days of August 13, 2007. The shares issuable pursuant to the exercise of those options or
warrants are deemed outstanding for computing the percentage ownership of the person holding those
options and warrants but are not deemed outstanding for the purposes of computing the percentage
ownership of any other person. Unless otherwise indicated, the persons and entities named in the
table have sole voting and sole investment power with respect to the shares set forth opposite that
persons name, subject to community property laws, where applicable. |
|
(2) |
|
The number of shares beneficially owned includes an option to acquire 54,167 shares of common
stock exercisable within 60 days of August 13, 2007, and shares issuable upon exercise of warrants
to acquire 48,328 shares of common stock exercisable within 60 days of August 13, 2007. The number
of shares beneficially owned also includes 1,689,683 exchangeable shares. |
|
(3) |
|
The number of shares beneficially owned includes an option to acquire 54,167 shares of common
stock exercisable within 60 days of August 13, 2007. All other shares beneficially owned by such
stockholder are exchangeable shares. |
|
(4) |
|
The number of shares beneficially owned includes an option to acquire 54,167 shares of
common stock exerciseable within 60 days of August 13, 2007, and shares issuable upon exercise of a
warrant to acquire 13,328 shares of common stock exercisable within 60 days of August 13, 2007. The
number of shares beneficially owned also includes 1,689,683 exchangeable shares. |
|
(5) |
|
The number of shares beneficially owned includes an option to acquire 54,167 shares of common
stock exerciseable within 60 days of August 13, 2007, and shares issuable upon exercise of a
warrant to acquire 40,000 shares of common stock exercisable within 60 days of August 13, 2007. The
number of shares beneficially owned also includes 1,689,683 exchangeable shares. |
|
(6) |
|
The number of shares beneficially owned includes an option to acquire 50,000 shares of common
stock exercisable within 60 days of August 13, 2007, and shares issuable upon exercise of warrants
to acquire 274,991
shares of common stock exercisable within 60 days of August 13, 2007. The number of shares
beneficially owned also includes 1,688,889 exchangeable shares. |
|
(7) |
|
The number of shares beneficially owned includes an option to acquire 33,333 shares of common
stock exercisable within 60 days of August 13, 2007. The number beneficially owned also includes
shares issuable upon exercise of warrants to acquire 375,000 shares of common stock exercisable
within 60 days of August 13, 2007, of which warrants to acquire 275,000 shares are held by Perfco
Investments Ltd. (Perfco). The number of shares beneficially owned also includes 550,000 shares
of common stock directly owned by Perfco and 158,730 shares of common stock directly owned by Mr.
Dawsons spouse. The number of shares beneficially owned includes 1,688,889 exchangeable shares, of
which 1,587,302 are held by Perfco. Mr. Dawson is the sole owner of Perfco and has sole voting and
investment power over the shares beneficially owned by Perfco. Mr. Dawson disclaims beneficial
ownership over the shares owned by Mr. Dawsons spouse. |
70
|
|
|
(8) |
|
The number of shares beneficially owned includes an option to acquire 33,333 shares of common
stock exercisable within 60 days of August 13, 2007, and shares issuable upon exercise of a warrant
to acquire 112,496 shares of common stock exercisable within 60 days of August 13, 2007. The number
of shares beneficially owned includes 1,292,064 exchangeable shares, of which 396,825 are held by
KirstErin Resources, Ltd., a private family-owned business of which Mr. Johnson is the President.
Mr. Johnson has sole voting and investment power over the shares held by KirstErin Resources, Ltd. |
|
(9) |
|
The number of shares beneficially owned includes an option to acquire 33,333 shares of common
stock exercisable within 60 days of August 13, 2007, shares issuable upon exercise of a warrant to
acquire 362,500 shares of common stock exercisable within 60 days of August 13, 2007, and 100,000
shares and shares issuable upon exercise of a warrant to acquire 50,000 shares of common stock
exercisable within 60 days of August 13, 2007 held by John D. Long, Jr., Ms. Smiths spouse. |
|
(10) |
|
Greywolf Capital Management LP is the investment manager for (a) Greywolf Capital Overseas
Fund (GCOF), which owns 4,899,400 shares of common stock and a warrant to acquire 2,400,000
shares of common stock exercisable within 60 days of August 13, 2007, and (b) Greywolf Capital
Partners II (GCP), which owns 1,931,267 shares of common stock and a warrant to acquire 933,334
shares of common stock exercisable within 60 days of August 13, 2007. William Troy has the power to
vote and dispose of the shares of common stock beneficially owned by GCOF and GCP. The address for
Greywolf Capital Management LP is 4 Manhattanville Road, Purchase, NY 10577. |
|
(11) |
|
Includes shares beneficially owned by Millennium Global High Yield Fund Limited (the High
Yield Fund) and Millennium Global Natural Resources Fund Limited (the Natural Resources Fund).
The High Yield Fund owns 2,668,000 shares of common stock and a warrant to acquire 1,334,000 shares
of common stock exercisable within 60 days of August 13, 2007. The Natural Resources Fund owns
667,000 shares of common stock and a warrant to acquire 333,500 shares of common stock exercisable
within 60 days of August 13, 2007. Joseph Strubel has the power to vote and dispose of the shares
of common stock beneficially owned by the High Yield Fund and the Natural Resources Fund. The
address for Millennium Global Investments Limited is 57-59 St. James Street, London, U.K., SW1A
1LD. |
|
(12) |
|
Includes shares beneficially owned by US Global Investors Global Resources Fund (the Global
Fund) and US Global Investors Balanced Natural Resources Fund (the Balanced Fund). The Global
Fund owns 3,883,675 shares of common stock and a warrant to acquire 1,550,000 shares of common
stock exercisable within 60 days of August 13, 2007. The Balanced Fund owns 233,333 shares of
common stock and a warrant to acquire 116,667 shares of common stock exercisable within 60 days of
August 13, 2007. The remaining 858,675 shares of common stock are owned by the Meridian Resources
Fund. U.S. Global Investors has the power to vote and dispose of the shares of common stock
beneficially owned by the Global Fund, the Balanced fund and the Meridian Resources Fund. The
address for US Global Investors, Inc. is 7900 Callaghan Road, San Antonio, Texas 78229. |
|
(13) |
|
The number of shares beneficially owned includes options to acquire 366,667 shares of common
stock exercisable within 60 days of August 13, 2007, and warrants to acquire 1,226,642 shares of
common stock exercisable within 60 days of August 13, 2007. The number of shares beneficially owned
also includes 11,428,574 exchangeable shares. |
Selling Stockholders
This propsectus covers the offer and sale of shares issued or issuable upon to the selling
stockholders upon exchange of exchangeable shares of Gran Tierra Goldstrike, Inc., an indirect
subsidiary of Gran Tierra Energy Inc. previously held or currently held by the selling
stockholders. The exchangeable shares were issued to the selling stockholders in a private
offering on November 10, 2005. Also includes 2,920,574 shares issuable upon exercise of warrants held
by three selling stockholders issued in connection with a private placement in June 2006.
The following table sets forth information about the number of shares beneficially owned
by each selling stockholder that may be offered from time to time under this prospectus. Certain
selling stockholders may be deemed to be underwriters as defined in the Securities Act. Any
profits realized by the selling stockholder may be deemed to be underwriting commissions.
The table below has been prepared based upon the information furnished to us by the
selling stockholders as of September 15, 2007. The selling stockholders identified below may have
sold, transferred or otherwise disposed of some or all of their shares since the date on which the
information in the following table is presented in transactions exempt from or not subject to the
registration requirements of the Securities Act. Information
71
concerning the selling stockholders may change from time to time and, if necessary, we will
amend or supplement this prospectus accordingly. We cannot give an estimate as to the number of
shares of common stock that will be held by the selling stockholders upon termination of this
offering because the selling stockholders may offer some or all of their common stock under the
offering contemplated by this prospectus. The total number of shares that may be sold hereunder
will not exceed the number of shares offered hereby. Please read the section entitled Plan of
Distribution in this prospectus.
We
have been advised, as noted below in the footnotes to the table, three of the selling
stockholders are broker-dealers and none of the selling stockholders are affiliates of
broker-dealers. We have been advised that each such affiliate of a broker-dealer purchased our
common stock and warrants in the ordinary course of business, not for resale, and at the time of
purchase, did not have any agreements or understandings, directly or indirectly, with any person to
distribute the related common stock.
The following table sets forth the name of each selling stockholder, the nature of any
position, office, or other material relationship, if any, which the selling stockholder has had,
within the past three years, with us or with any of our predecessors or affiliates, and the number
of shares of our common stock beneficially owned by such stockholder before this offering. The
number of shares owned are those beneficially owned, as determined under the rules of the SEC, and
such information is not necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares of common stock as to which a person has sole
or shared voting power or investment power and any shares of common stock which the person has the
right to acquire within 60 days through the exercise of any option, warrant or right, through
conversion of any security or pursuant to the automatic termination of a power of attorney or
revocation of a trust, discretionary account or similar arrangement.
Beneficial
ownership is calculated based on 94,863,576 shares of our common stock outstanding
as of September 15, 2007, which includes 14,946,030 exchangeable shares of Goldstrike Exchange Co.
issued to holders of Gran Tierra Canadas common stock. Beneficial ownership is determined in
accordance with Rule 13d-3 of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percentage of ownership of that person, shares of
common stock subject to options or warrants held by that person that are currently exercisable or
become exercisable within 60 days of September 15, 2007 are deemed outstanding even if they have not
actually been exercised. Those shares, however, are not deemed outstanding for the purpose of the
table. The persons and entities named in the table have sole voting and sole investment power with
respect to the shares set forth opposite the stockholders name, subject to community property
laws, where applicable.
72
REGISTER OF HOLDERS OF EXCHANGEABLE SHARES OF
GRAN TIERRA GOLDSTRIKE INC.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common |
|
Percentage of |
|
|
|
|
|
|
Shares of Common |
|
|
|
|
|
Stock Beneficially |
|
Common Stock |
|
|
|
|
|
|
Stock Beneficially |
|
|
|
|
|
Owned upon |
|
Beneficially Owned |
|
|
|
|
|
|
Owned Before the |
|
Shares of Common |
|
Completion of |
|
Upon Completion of |
Footnote |
|
Shareholder |
|
Offering |
|
Stock Being Offered |
|
Offering |
|
Offering |
|
1 |
|
|
Jeffrey J. Scott |
|
|
2,563,861 |
|
|
|
1,688,889 |
|
|
|
874,972 |
|
|
|
* |
|
|
2 |
|
|
Walter A. Dawson |
|
|
3,005,952 |
|
|
|
101,587 |
|
|
|
2,904,365 |
|
|
|
3.05 |
% |
|
3 |
|
|
Margaret A. Dawson |
|
|
158,730 |
|
|
|
158,730 |
|
|
|
0 |
|
|
|
* |
|
|
4 |
|
|
Perfco
Investments Ltd. |
|
|
2,412,302 |
|
|
|
1,587,302 |
|
|
|
825,000 |
|
|
|
* |
|
|
5 |
|
|
Verne G. Johnson |
|
|
1,808,713 |
|
|
|
895,238 |
|
|
|
913,475 |
|
|
|
* |
|
|
6 |
|
|
KristErin
Resources Inc. |
|
|
396,825 |
|
|
|
396,825 |
|
|
|
0 |
|
|
|
* |
|
|
|
|
|
Randall Pounds |
|
|
317,460 |
|
|
|
317,460 |
|
|
|
0 |
|
|
|
* |
|
|
7 |
|
|
Rafael Orunesu |
|
|
1,863,850 |
|
|
|
1,689,683 |
|
|
|
174,167 |
|
|
|
* |
|
|
8 |
|
|
Dana Coffield |
|
|
2,117,560 |
|
|
|
1,689,683 |
|
|
|
427,877 |
|
|
|
* |
|
|
9 |
|
|
M. C. Coffield |
|
|
228,730 |
|
|
|
158,730 |
|
|
|
70,000 |
|
|
|
* |
|
|
10 |
|
|
Max Hsu Wei |
|
|
1,783,834 |
|
|
|
1,689,683 |
|
|
|
94,151 |
|
|
|
* |
|
|
11 |
|
|
James Robert Hart |
|
|
1,743,850 |
|
|
|
1,689,683 |
|
|
|
54,167 |
|
|
|
* |
|
|
12 |
|
|
Mark Wayne |
|
|
793,651 |
|
|
|
793,651 |
|
|
|
0 |
|
|
|
* |
|
|
13 |
|
|
Adeco
Exploration Company Ltd. |
|
|
158,730 |
|
|
|
158,730 |
|
|
|
0 |
|
|
|
* |
|
|
|
|
|
Luc Chartrand |
|
|
233,730 |
|
|
|
158,730 |
|
|
|
75,000 |
|
|
|
* |
|
|
14 |
|
|
John Taylor |
|
|
183,730 |
|
|
|
158,730 |
|
|
|
25,000 |
|
|
|
* |
|
|
|
|
|
Barry R. Balsillie |
|
|
208,730 |
|
|
|
158,730 |
|
|
|
50,000 |
|
|
|
* |
|
|
15 |
|
|
William J. Scott |
|
|
388,095 |
|
|
|
158,730 |
|
|
|
229,365 |
|
|
|
* |
|
|
16 |
|
|
Dale Foster |
|
|
341,797 |
|
|
|
79,365 |
|
|
|
262,432 |
|
|
|
* |
|
|
17 |
|
|
The Roger
Tang Family Trust |
|
|
158,730 |
|
|
|
158,730 |
|
|
|
0 |
|
|
|
* |
|
|
18 |
|
|
Josef Hocher |
|
|
158,730 |
|
|
|
158,730 |
|
|
|
0 |
|
|
|
* |
|
|
|
|
|
Keith Bekker |
|
|
79,365 |
|
|
|
79,365 |
|
|
|
0 |
|
|
|
* |
|
|
12 |
|
|
Dennis Flanagan |
|
|
158,730 |
|
|
|
158,730 |
|
|
|
0 |
|
|
|
* |
|
|
19 |
|
|
Soderglen
Ranches Ltd. |
|
|
258,730 |
|
|
|
158,730 |
|
|
|
100,000 |
|
|
|
* |
|
|
12 |
|
|
David Roger Keith |
|
|
158,730 |
|
|
|
158,730 |
|
|
|
0 |
|
|
|
* |
|
|
20 |
|
|
Robert D. Steele |
|
|
472,460 |
|
|
|
317,460 |
|
|
|
155,000 |
|
|
|
* |
|
|
12 |
|
|
James Greenslade |
|
|
158,730 |
|
|
|
158,730 |
|
|
|
0 |
|
|
|
* |
|
|
21 |
|
|
Donald A. Wright |
|
|
1,658,730 |
|
|
|
158,730 |
|
|
|
1,500,000 |
|
|
|
1.57 |
% |
|
|
|
|
Gary R. Smith |
|
|
158,730 |
|
|
|
158,730 |
|
|
|
0 |
|
|
|
* |
|
|
22 |
|
|
Neil MacKenzie |
|
|
258,730 |
|
|
|
158,730 |
|
|
|
100,000 |
|
|
|
* |
|
|
12 |
|
|
Ahmed
Hussain Al-Khalaf |
|
|
158,730 |
|
|
|
158,730 |
|
|
|
0 |
|
|
|
* |
|
|
23 |
|
|
Argentiere Ltd. |
|
|
158,730 |
|
|
|
158,730 |
|
|
|
0 |
|
|
|
* |
|
|
24 |
|
|
1110071 Ontario Inc. |
|
|
317,460 |
|
|
|
317,460 |
|
|
|
0 |
|
|
|
* |
|
|
25 |
|
|
Slapco Ltd. |
|
|
104,761 |
|
|
|
104,761 |
|
|
|
0 |
|
|
|
* |
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common |
|
Percentage of |
|
|
|
|
|
|
Shares of Common |
|
|
|
|
|
Stock Beneficially |
|
Common Stock |
|
|
|
|
|
|
Stock Beneficially |
|
|
|
|
|
Owned upon |
|
Beneficially Owned |
|
|
|
|
|
|
Owned Before the |
|
Shares of Common |
|
Completion of |
|
Upon Completion of |
Footnote |
|
Shareholder |
|
Offering |
|
Stock Being Offered |
|
Offering |
|
Offering |
|
26 |
|
|
H. Alexander Rowlands |
|
|
212,699 |
|
|
|
212,699 |
|
|
|
0 |
|
|
|
* |
|
|
27 |
|
|
411205 Alberta Ltd. |
|
|
1,587,302 |
|
|
|
1,587,302 |
|
|
|
0 |
|
|
|
* |
|
|
28 |
|
|
Edward J. Muchowski |
|
|
308,730 |
|
|
|
158,730 |
|
|
|
150,000 |
|
|
|
* |
|
|
12 |
|
|
Reg Greenslade |
|
|
158,730 |
|
|
|
158,730 |
|
|
|
0 |
|
|
|
* |
|
|
12 |
|
|
Gordon Skulmoski |
|
|
79,365 |
|
|
|
79,365 |
|
|
|
0 |
|
|
|
* |
|
|
29 |
|
|
Frank Elliott |
|
|
207,730 |
|
|
|
158,730 |
|
|
|
49,000 |
|
|
|
* |
|
|
30 |
|
|
1053361 Alberta Ltd. |
|
|
491,365 |
|
|
|
79,365 |
|
|
|
412,500 |
|
|
|
* |
|
|
31 |
|
|
Deutsche
Bank Securities Inc. |
|
|
1,308,291 |
|
|
|
1,308,291 |
|
|
|
0 |
|
|
|
* |
|
|
31 |
|
|
SMH Capital Inc. |
|
|
1,308,921 |
|
|
|
1,308,921 |
|
|
|
0 |
|
|
|
* |
|
|
32 |
|
|
Canaccord
Capital Corporation |
|
|
207,847 |
|
|
|
207,847 |
|
|
|
0 |
|
|
|
* |
|
|
|
|
|
Totals |
|
|
31,001,186 |
|
|
|
21,555,215 |
|
|
|
9,446,471 |
|
|
|
|
|
* Less than one percent.
1 |
|
Includes 1,688,889 shares of common stock issuable upon the exchange of exchangeable shares
and 324,991 shares of common stock issuable pursuant to options and warrants exercisable within 60
days of September 15, 2007. Mr. Scott serves as our Chairman of the Board. |
|
2 |
|
Includes 101,587 shares of common stock issuable upon the exchange of exchangeable shares and 408,333 shares of common stock issuable pursuant to options or warrants exercisable
within 60 days of September 15, 2007. Also includes 550,000 shares of common stock and 1,587,302
shares of common stock issuable upon the exchange of exchangeable shares held by Perfco
Investments Ltd., of which Mr. Dawson is the President and sole owner. Also includes 158,730
shares of common stock issuable upon the exchange of exchangeable shares held by Mr. Dawsons
spouse. Mr. Dawson disclaims beneficial ownership of the 158,730 shares of common stock issuable
to his spouse. Mr. Dawson serves as a member of the Board. |
|
3 |
|
Includes 158,730 shares of common stock issuable upon the exchange of exchangeable shares. Does not include shares beneficially owned by Margaret Dawsons husband, Walter Dawson, or
Perfco Investments Ltd. See notes 2 and 4 to this table. |
|
4 |
|
Includes 1,587,302 shares of common stock issuable upon the exchange of exchangeable shares and 275,000 shares of common stock issuable pursuant to options or warrants exercisable
within 60 days of September 15, 2007. Walter Dawson, President and sole owner of Perfco
Investments Ltd., has sole investment and voting power over the shares of common stock owned by
Perfco Investments Ltd. Mr. Dawson is a member of the Board. |
|
5 |
|
Includes 895,238 shares of common stock issuable upon the exchange of exchangeable shares and 145,829 shares of common stock issuable pursuant to options or warrants exercisable
within 60 days of September 15, 2007. In addition, KristErin Resources Ltd., a private
family-owned business of which Mr. Johnson is the President and has sole voting and investment
power, holds 396,825 shares of common stock issuable upon the exchange of exchangeable shares. Mr.
Johnson serves as a member of the Board. |
|
6 |
|
Consists solely of shares of common stock issuable upon the exchange of exchangeable shares. Verne Johnson, President and Sole Owner of KristErin Resources Inc. has the power to vote
and invest the shares of common stock being registered on behalf of KristErin Resources Inc. Mr.
Johnson is a member of the Board. |
|
7 |
|
Includes 1,689,683 shares of common stock issuable upon the exchange of exchangeable shares and 94,167 shares of common stock issuable pursuant to options or warrants that Mr. Orunesu
has the right to acquire within 60 days of September 15, 2007. Mr. Orunesu is the President of
Gran Tierra Argentina, a subsidiary of Gran Tierra. |
74
8 |
|
Includes 1,689,683 shares of common stock issuable upon the exchange of exchangeable shares and 102,495 shares of common stock issuable pursuant to options or warrants exercisable
within 60 days of September 15, 2007. Also includes 70,000 shares of common stock held by
relatives, including M.C. Coffield, and 158,730 shares of common stock issuable upon the exchange
of exchangeable shares held by M.C. Coffield. Dana Coffield disclaims beneficial ownership of the
70,000 shares of common stock and 158,730 shares of common stock issuable upon exchange of
exchangeable shares held by his relatives. Dana Coffield serves as our President, Chief Executive Officer and
as a member of the Board. |
|
9 |
|
Includes 50,000 shares of common stock held by Mr. Coffields spouse. Mr. Coffield disclaims beneficial ownership of 50,000 shares of common stock held by his spouse. M.C. Coffield
is the father of Dana Coffield. Does not include shares held by Dana Coffield. See note 8. |
|
10 |
|
Includes 1,689,683 shares of common stock issuable upon the exchange of exchangeable shares and 67,495 shares of common stock issuable pursuant to options or warrants exercisable
within 60 days of September 15, 2007. Mr. Wei is our Vice President, Operations. |
|
11 |
|
Includes 1,689,683 shares of common stock issuable upon the exchange of exchangeable shares and 54,167 shares of common stock pursuant to options or warrants exercisable within 60
days of September 15, 2007. Mr. Hart was formerly our Vice President, Finance, Chief Financial
Officer and a member of the Board. |
|
12 |
|
Consists solely of shares of common stock issuable upon the exchange of exchangeable shares. |
|
13 |
|
Consists solely of shares of common stock issuable upon the exchange of exchangeable shares. J.G. Williams, President of Adeco Exploration Company Ltd., has the has the power to vote
and invest the shares of common stock being registered on behalf of Adeco Exploration Company Ltd. |
|
14 |
|
Includes 25,000 shares of common stock beneficially held by a relative. |
|
15 |
|
Includes 158,730 shares of common stock issuable upon the exchange of exchangeable shares and 129,365 shares of common stock issuable pursuant to warrants exercisable within 60 days
of September 15, 2007. |
|
16 |
|
Includes 79,365 shares of common stock issuable upon the exchange of exchangeable shares and 37,487 shares of common stock issuable pursuant to warrants exercisable within 60 days
of September 15, 2007. Also includes 99,981 shares of common stock and 49,991 shares of common
stock issuable pursuant to warrants exercisable within 60 days of September 15, 2007 beneficially
held by 893619 Alberta Ltd., of which Mr. Foster is the President and Director, and over which Mr.
Foster has sole voting and investment power. |
|
17 |
|
Roger Tang and Sue Tang have the power to vote and invest the shares of common stock being registered on behalf of The Roger Tang Family Trust. |
|
18 |
|
Consists solely of shares of common stock issuable upon the exchange of exchangeable shares. The shares are held in trust for Joseph Hocher by NBCN Clearing Inc. AC 41AU44E. |
|
19 |
|
Includes 158,730 shares of common stock issuable upon the exchange of exchangeable shares. The shares are held in trust for Soderglen Ranches Ltd. by NBN Clearing. |
|
20 |
|
Includes 317,460 shares of common stock issuable upon the exchange of exchangeable shares. |
|
21 |
|
Includes 158,730 shares of common stock issuable upon the exchange of exchangeable shares and 500,000 shares of common stock issuable pursuant to warrants that are exercisable
within 60 days of September 15, 2007. |
|
22 |
|
Includes 158,730 shares of common stock issuable upon the exchange of exchangeable shares. |
|
23 |
|
Consists solely of shares of common stock issuable upon the exchange of exchangeable shares. Peter Grut, the director of Argentiere Ltd., has the power to vote and invest the shares
of common stock being registered on behalf of Argentiere Ltd. Peter Grut disclaims beneficial
ownership of the shares registered on behalf of Argentiere Ltd. |
75
24 |
|
Ross McMaster may be deemend to have the power to vote and invest the common shares being registered on behalf of 1110071 Ontario Inc. The shares held by 1110071 Ontario Inc. are
held in trust for 1110071 Ontario Inc. by NBCN. |
|
25 |
|
Consists solely of shares of common stock issuable upon the exchange exchangeable shares. Earle McMaster, the President and CEO of Slapco Ltd., may be deemed to have voting and
investment power over the shares being registered on behalf of Slapco Ltd. |
|
26 |
|
The shares are held in trust for Alexander Rowlands by NCBN. |
|
27 |
|
Ronald Brimacombe may be deemed to have voting and investment power over the shares being registered on behalf of 411209 Alberta Ltd. |
|
28 |
|
Includes 158,730 shares of common stock issuable upon the exchange of exchangeable shares and 50,000 shares of common stock issuable pursuant to warrants exercisable within 60 days
of September 15, 2007. |
|
29 |
|
Includes 158,730 shares of common stock held in the name of Raymond Jones, Ltd. in trust for
Frank Elliott.
|
|
30 |
|
Includes 79,365 shares of common stock issuable upon the exchange of exchangeable shares and
137,500 shares of common stock issuable pursuant to warrants exercisable within 60 days of
September 15, 2007. Glen Gurr, President of 1053361 Alberta Ltd., and Rhonda Trueman, Vice
President of 1053361 Alberta Ltd., have the power to vote and invest the shares registered on
behalf of 1053361 Alberta Ltd.
|
|
31 |
|
Consists solely of shares issuable upon the exercise of warrants issued in connection with the June 2006 private offering. This selling stockholder is a broker-dealer. |
|
32 |
|
Consists solely of shares issuable upon the exercise of warrants issued in connection with the June 2006 private offering. This selling stockholder is a broker-dealer. Mr. Brad Kotush,
Chief Financial Officer of Canaccord Capital Corporation, has the power to vote and invest the shares registered on behalf of Canaccord Capital Corporation. |
76
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2006, there have been no transactions, or proposed transactions, to which we
are or were a party, in which any of our directors or executive officers, any nominee for
election as a director, any persons who beneficially owned, directly or indirectly, shares with
more than 5% of the common stock or any relatives of any of the foregoing had or is to have a
direct or indirect material interest, except for their purchase of our securities.
In June 2006, we completed the sale of 50,000,000 units for gross proceeds totaling
$75,000,000, less issue costs of $6,306,699. Each unit consisted of one share of our common stock
at $1.50 per share and a warrant to purchase one-half share of our common stock for a period of
five years at an exercise price of $1.75 per whole share. Participating in this financing were the
following related parties of our company:
|
|
|
|
|
|
|
|
|
Name |
|
# Units Purchased |
|
Purchase Price |
Dana Coffield (1)
|
|
|
66,667 |
|
|
$ |
100,001 |
|
Jeffrey Scott (2)
|
|
|
100,000 |
|
|
$ |
150,000 |
|
William Scott (3)
|
|
|
100,000 |
|
|
$ |
150,000 |
|
Verne G. Johnson (4)
|
|
|
100,006 |
|
|
$ |
150,009 |
|
Perfco Investments Ltd. (5)
|
|
|
200,000 |
|
|
$ |
300,000 |
|
Nadine C. Smith and
John Long, Jr. (6)
|
|
|
100,000 |
|
|
$ |
150,000 |
|
Rafael Orunesu (7)
|
|
|
80,000 |
|
|
$ |
120,000 |
|
Max Wei (8)
|
|
|
26,656 |
|
|
$ |
39,984 |
|
Greywolf Capital Management LP (9)
|
|
|
6,666,667 |
|
|
$ |
10,000,001 |
|
Millennium Global Investments Limited (10)
|
|
|
3,335,000 |
|
|
$ |
5,002,500 |
|
US Global Investors, Inc. (11)
|
|
|
3,333,333 |
|
|
$ |
5,000,000 |
|
|
|
|
(1) |
|
Mr. Coffield is a director of our company and our Chief Executive Officer. |
|
(2) |
|
Mr. Jeffrey Scott is a director and is Chairman of our company. |
|
(3) |
|
Mr. William Scott is the father of Jeffrey Scott, a director and chairman of our company. |
|
(4) |
|
Mr. Johnson is a director of our company. |
|
(5) |
|
Perfco Investments Ltd. is a company, the sole owner of which is Mr. Walter Dawson, a
director of our company. |
|
(6) |
|
Ms. Smith is a director of our company. John Long Jr. is the husband of Ms. Smith. |
|
(7) |
|
Mr. Orunesu is the President of Gran Tierra Energy Argentina, our Argentinean subsidiary. |
|
(8) |
|
Mr. Wei is our Vice President, Operations. |
|
(9) |
|
Consists of 4,800,000 units purchased by Greywolf Capital Overseas Fund LP, and
1,866,667 units purchased by Greywolf Capital Partners II, LP. See Note 8 of the
Security Ownership of Certain Beneficial Owners and Management table in Item 11 of this
report. |
|
(10) |
|
Consists of 2,668,000 units purchased by Millennium Global High Yield Fund Limited,
and 667,000 units purchased by Millennium Global Natural Resources Fund Limited. See
Note 9 of the Security Ownership of Certain Beneficial Owners and Management table in
Item 11 of this report. |
|
(11) |
|
Consists of 3,100,000 units purchased by US Global Investors Global Resources Fund,
and 233,333 units purchased by US Global Investors Balanced Natural Resources Fund .
See Note 10 of the Security Ownership of Certain Beneficial Owners and Management table
in Item 11 of this report. |
In June 2007 we amended the terms of all of the warrants issued to the investors in the June 2006
offering, which extended the term of the warrants for one year, and decreased the exercise price
of the warrants to $1.05. In exchange, the investors waived their right to receive cash payments
in the amount of the accrued liquidated damages of approximately
$8,625,000 for each unit purchased. The above
parties automatically participated in the amendment of the warrants and waiver of the liquidated
damages.
During 2005, there were no transactions, or proposed transactions, to which we are or were
a party, in which any of our directors or executive officers, any nominee for election as a
director, any persons who beneficially owned, directly or indirectly, shares with more than 5%
of the common stock or any relatives of any
of the foregoing had or is to have a direct or indirect material interest, except for
their purchase of our securities.
77
|
|
|
|
|
|
|
|
|
Name |
|
# Units Purchased |
|
Purchase Price |
Dana Coffield (1)
|
|
|
29,985 |
|
|
$ |
23,988 |
|
Jeffrey Scott (2)
|
|
|
449,981 |
|
|
$ |
359,985 |
|
Verne G. Johnson (3)
|
|
|
124,985 |
|
|
$ |
99,988 |
|
Walter Dawson/Perfco Investments Ltd.(4)
|
|
|
550,000 |
|
|
$ |
440,000 |
|
Nadine C. Smith and
John Long, Jr. (5)
|
|
|
625,000 |
|
|
$ |
500,000 |
|
Bank Sal. Oppenheim Jr. & Cie (Switzerland) Ltd.
|
|
|
2,125,000 |
|
|
$ |
1,700,000 |
|
|
|
|
(1) |
|
Mr. Coffield is a director of our company and our Chief Executive Officer. |
|
(2) |
|
Mr. Jeffrey Scott is a director and is Chairman of our company. |
|
(3) |
|
Mr. Johnson is a director of our company. |
|
(4) |
|
Walter Dawson is a director of our company and is sole owner of Perfco Investments Ltd. |
|
(5) |
|
Ms. Smith is a director of our company. John Long Jr. is the husband of Ms. Smith. |
In connection with our acquisition of Goldstrike, which occurred on November 10, 2005, the
following related parties received the following numbers of exchangeable shares. Each had the
option to receive exchangeable shares or shares of our common stock. None of the parties elected
to receive shares of our common stock.
|
|
|
|
|
|
|
|
|
Name |
|
# Exchangeable Shares |
|
Original Purchase Price |
Dana Coffield (1)
|
|
|
1,689,683 |
|
|
$ |
111,825 |
|
James Hart (2)
|
|
|
1,689,683 |
|
|
$ |
111,825 |
|
Max Wei (3)
|
|
|
1,689,683 |
|
|
$ |
111,825 |
|
Rafael Orunesu (4)
|
|
|
1,689,683 |
|
|
$ |
111,825 |
|
Jeffrey Scott (5)
|
|
|
1,688,889 |
|
|
$ |
186,733 |
|
Verne G. Johnson/KristErin Resources Inc. (6)
|
|
|
1,292,063 |
|
|
$ |
186,733 |
|
Walter Dawson/Perfco Investments Ltd. (7)
|
|
|
1,688,889 |
|
|
$ |
161,733 |
|
411209 Alberta
|
|
|
1,587,302 |
|
|
$ |
175,000 |
|
|
|
|
(1) |
|
Mr. Coffield is a director of our company and our Chief Executive Officer. |
|
(2) |
|
Mr. Hart is a director and is former Chief Financial Officer of our company. |
|
(3) |
|
Mr. Wei is our Vice-President, Operations. |
|
(4) |
|
Rafael Orunesu is President of our operations in Argentina. |
|
(5) |
|
Jeffrey Scott is a director and is Chairman of our Company. |
|
(6) |
|
Verne Johnson is a director of our company and is sole owner of KristErin Resources Inc. |
|
(7) |
|
Walter Dawson is a director of our company and is sole owner of Perfco Investments Ltd. |
We have not engaged in any transactions with promoters or founders in which a promoter or
founder has received any type of consideration from us.
Policies and Procedures
Our company discourages related party transactions. Potential related party transactions
are to be referred to our Chief Executive Officer, and brought to the attention of the Board if
material.
78
DESCRIPTION OF CAPITAL STOCK
Authorized Capital Stock
The Certificate of Amendment to our Articles of Incorporation filed with the Secretary of
State of Nevada on June 1, 2006, authorized the issuance of 325,000,001 shares of our capital
stock, of which 300 million were designated as common stock, par value $0.001 per share, 25 million
were designated as preferred stock, par value $0.001 per share, and 1 share was designated as
special voting stock, par value $0.001 per share.
Capital Stock Issued and Outstanding
As
of September 15, 2007, there were issued and outstanding
94,863,576 shares of common stock
(including 14,946,030 shares of
common stock issuable upon exchange of exchangeable shares), no
shares of preferred stock and 1 special voting share.
The following description of our capital stock is derived from various provisions of our
Articles of Incorporation and our First Amended and Restated Bylaws as well as provisions of
applicable law. Such description is not intended to be complete and is qualified in its entirely by
reference to the relevant provisions of our Articles of Incorporation and our First Amended and
Restated Bylaws.
Description of Common Stock
We are authorized to issue 300,000,000 shares of common stock, par value $0.001 per share,
79,582,751 of which was outstanding as of April 2, 2007. Holders of the common stock are entitled
to one vote for each share on all matters submitted to a stockholder vote. Holders of common stock
do not have cumulative voting rights. Therefore, holders of a majority of the shares of common
stock voting for the election of directors can elect all of the directors. Holders of the common
stock representing a majority of the voting power of the capital stock issued, outstanding and
entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any
meeting of stockholders. A vote by the holders of a majority of the outstanding shares of common
stock is required to effectuate certain fundamental corporate changes such as liquidation, merger
or an amendment to the articles of incorporation.
Holders of common stock are entitled to share in all dividends that the board of directors, in
its discretion, declares from legally available funds. In the event of a liquidation, dissolution
or winding up, each outstanding share entitles its holder to participate pro rata in all assets
that remain after payment of liabilities and after providing for each class of stock, if any,
having preference over the common stock. Holders of the common stock have no pre-emptive rights, no
conversion rights and there are no redemption provisions applicable to the common stock.
Preferred Stock
We are authorized to issue 25,000,000 shares of blank check preferred stock, par value
$0.001 per share, none of which as of April 2, 2007 was designated, issued or outstanding. The
board of directors is vested with authority to divide the shares of preferred stock into series and
to fix and determine the relative rights and preferences of the shares of any such series. Once
authorized, the dividend or interest rates, conversion rates, voting rights, redemption prices,
maturity dates and similar characteristics of the preferred stock will be determined by the board
of directors, without the necessity of obtaining approval of the stockholders.
Special Voting Stock
The one share of our special voting stock was designated to allow the holders of exchangeable
shares issued in connection with the transaction between the former shareholders of Gran Tierra
Canada and Goldstrike to vote at our stockholder meetings. The holder of the share of special
voting stock is not entitled to receive dividends or distributions, but has the right to vote on
each matter on which holders of our common stock are entitled to vote and to cast that number of
votes equal to the number of exchangeable shares outstanding that are not owned by us or our
affiliates. In connection with the share exchange transaction involving the former shareholders of
Gran Tierra
79
Canada, the share of special voting stock was issued to Olympia Trust Company as trustee for
the holders of exchangeable shares. The trustee may only cast votes with respect to the share of
special voting stock based on instructions received from the holders of exchangeable shares. The
exchangeable shares are described more fully below.
Exchangeable Shares
In the share exchange transaction involving the former shareholders of Gran Tierra Canada and
Goldstrike, the Gran Tierra Canada stockholders were permitted to elect to receive, for each share
of Gran Tierra Canadas common stock held before the share exchange, 1.5873016 exchangeable shares
of Goldstrike Exchange Co. The exchangeable shares are a means to defer taxes paid in Canada. Each
exchangeable share can be exchanged by the holder for one share of our common stock at any time,
and will receive the same dividends payable on our common stock. At the time of exchange, taxes may
be due from the holders of the exchange shares. The exchangeable shares have voting rights through
special voting stock described above, and the holders thereof are able to vote on all matters on
which the holders of our common stock are entitled to vote.
In order to exchange exchangeable shares for shares of common stock a holder of
exchangeable shares must submit a retraction request to Goldstrike Exchange Co. together with the
share certificate representing the exchangeable shares. 120367 Alberta Inc. is a corporation
incorporated under the laws of Alberta and is a wholly-owned subsidiary of Gran Tierra. Pursuant to
a Voting Exchange and Support Agreement included as Exhibit 10.4 to the registration statement of
which this prospectus forms a part, 120367 Alberta Inc. has an overriding right to purchase any
exchangeable shares for which a retraction request has been submitted by providing the holder of
the exchangeable shares subject to a retraction request with one share of common stock for each
exchangeable share. Pursuant to the Voting Exchange and Support Agreement between 120367 Alberta
Inc. and Gran Tierra, Gran Tierra is obligated to deliver shares of its common stock to 120367
Alberta Inc. in order to satisfy the obligations of 120367 Alberta Inc.
Holders of exchangeable shares have the right to instruct the trustee to cause 120367
Alberta Inc. to purchase exchangeable shares for shares of common stock if Goldstrike Exchange Co
becomes insolvent or institutes insolvency proceedings. In addition, 120367 Alberta Inc. will be
deemed to have purchased the exchangeable shares for shares of common stock if we are subject to
liquidation, wound up or dissolved.
The exchangeable shares are subject to retraction by Goldstrike Exchange Co. for shares
of common stock at the earlier of: (i) November 10, 2012; (ii) the date that less than 10% of the
issued and outstanding exchangeable shares are held by parties not affiliated with us; (iii) the
date when the holders of exchangeable shares fail to approve a sale of all or substantially all of
the assets of Goldstrike Exchange Co when requested to do so by us; (iv) the date when holders of
exchangeable shares fail to approve a change in the terms of the exchangeable shares that is
required to maintain their economic equivalence to shares of common stock; or (v) if there is a
change of control transaction with respect to us. 120367 Alberta Inc has the right to purchase all
exchangeable shares for common stock on the of the occurrence of any of these retraction events or
if Goldstrike Exchange Co is being liquidated. In addition, we have the right to purchase (or to
cause 120367 Alberta Inc. to purchase) all exchangeable shares if there is a change of law that
permits holders of exchangeable shares to exchange their exchangeable shares for shares of common
stock on a basis that will not require holders to recognize a capital gain for Canadian tax
purposes.
Options
As
of September 15, 2007, options representing the right to purchase 3,540,000 shares of common
stock are issued and outstanding at a weighted average exercise price of $1.21. The outstanding
options were granted pursuant to our 2005 Equity Incentive Plan to certain of our employees,
officers and employee-directors and are exercisable for 10 years from the date of grant. Of these
options, 2,020,000 were issued subject to shareholder approval of an increase in the reserve under
the 2005 Plan and, if shareholder approval is not obtained, then they will be rescinded.
80
Warrants
As of
September 15, 2007, the following warrants were issued and outstanding:
|
|
|
Warrants representing the right to purchase 7,174,436 shares of our common stock.
The outstanding warrants were
issued on varying dates between September 2005 and February 2006,
and are exercisable for five years from the date of issuance at an
exercise price of $1.25 per share. The shares of common stock
underlying the outstanding warrants are being registered under
this registration statement. |
|
|
|
|
Warrants representing the right to purchase 25,825,087 shares of
our common stock. The outstanding warrants are exercisable until
June 2012 at an exercise price of $1.05 per share. The warrants
can be called by us if our common stock trades above $3.50 for 20
consecutive days. |
Indemnification; Limitation of Liability
Nevada Revised Statutes (NRS) Sections 78.7502 and 78.751 provide us with the power to
indemnify any of our directors and officers. The director or officer must have conducted
himself/herself in good faith and reasonably believe that his/her conduct was in, or not opposed to
our best interests. In a criminal action, the director, officer, employee or agent must not have
had reasonable cause to believe his/her conduct was unlawful.
Under NRS Section 78.751, advances for expenses may be made by agreement if the director or
officer affirms in writing that he/she believes he/she has met the standards and will personally
repay the expenses if it is determined such officer or director did not meet the standards.
Our bylaws include an indemnification provision under which we have the power to indemnify our
directors, officers, employees and former directors, officers and employees (including heirs and
personal representatives) to the fullest extent permitted under Nevada law.
Our articles of incorporation and bylaws provide a limitation of liability in that no
director or officer shall be personally liable to Gran Tierra or any of its shareholders for
damages for breach of fiduciary duty as director or officer involving any act or omission of any
such director or officer, provided there was no intentional misconduct, fraud or a knowing
violation of the law, or payment of dividends in violation of NRS Section 78.300.
Our employment agreements with certain of our executive officers contain provisions which
require us to indemnify them for costs, charges and expenses incurred in connection with (i) civil,
criminal or administrative actions resulting from the executive officers service as such and (ii)
actions by or on behalf of the Company to which the executive officer is made a party. We are
required to provide such indemnification if (i) the executive officer acted honestly and in good
faith with a view to the best interests of the Company, and (ii) in the case of a criminal or
administrative proceeding or proceeding that is enforced by a monetary policy, the executive
officer had reasonable grounds for believing that his conduct was lawful.
We have also entered into an indemnity agreement with all of our officers and directors. The
agreement provides that the we will indemnify officers and directors to the fullest extent
permitted by law, including indemnification in third party claims and derivative actions. The
agreement also provides that we will provide an advancement for expenses incurred by the officers
or directors.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted
for our directors, officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
81
Anti-Takeover Effects of Provisions of Nevada State Law
We may be or in the future we may become subject to Nevadas control share law. A corporation
is subject to Nevadas control share law if it has more than 200 stockholders, at least 100 of whom
are stockholders of record and residents of Nevada, and if the corporation does business in Nevada
or through an affiliated corporation.
The law focuses on the acquisition of a controlling interest which means the ownership of
outstanding voting shares is sufficient, but for the control share law, to enable the acquiring
person to exercise the following proportions of the voting power of the corporation in the election
of directors: (1) one-fifth or more but less than one-third, (2) one-third or more but less than a
majority, or (3) a majority or more. The ability to exercise such voting power may be direct or
indirect, as well as individual or in association with others.
The effect of the control share law is that the acquiring person, and those acting in
association with it, obtain only such voting rights in the control shares as are conferred by a
resolution of the stockholders of the corporation, approved at a special or annual meeting of
stockholders. The control share law contemplates that voting rights will be considered only once by
the other stockholders. Thus, there is no authority to take away voting rights from the control
shares of an acquiring person once those rights have been approved. If the stockholders do not
grant voting rights to the control shares acquired by an acquiring person, those shares do not
become permanent non-voting shares. The acquiring person is free to sell its shares to others. If
the buyers of those shares themselves do not acquire a controlling interest, their shares do not
become governed by the control share law.
If control shares are accorded full voting rights and the acquiring person has acquired
control shares with a majority or more of the voting power, any stockholder of record, other than
an acquiring person, who has not voted in favor of approval of voting rights is entitled to demand
fair value for such stockholders shares.
Nevadas control share law may have the effect of discouraging corporate takeovers.
In addition to the control share law, Nevada has a business combination law, which prohibits
certain business combinations between Nevada corporations and interested stockholders for three
years after the interested stockholder first becomes an interested stockholder unless the
corporations board of directors approves the combination in advance. For purposes of Nevada law,
an interested stockholder is any person who is (1) the beneficial owner, directly or indirectly,
of ten percent or more of the voting power of the outstanding voting shares of the corporation, or
(2) an affiliate or associate of the corporation and at any time within the three previous years
was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the
then outstanding shares of the corporation. The definition of the term business combination is
sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer
to use the corporations assets to finance the acquisition or otherwise to benefit its own
interests rather than the interests of the corporation and its other stockholders.
The effect of Nevadas business combination law is to potentially discourage parties
interested in taking control of Gran Tierra from doing so if it cannot obtain the approval of our
board of directors.
PLAN OF DISTRIBUTION
The selling stockholders may, from time to time, sell any or all of their shares of common
stock on any stock exchange, market or trading facility on which the shares are traded or in
private transactions. If the shares of common stock are sold through underwriters or
broker-dealers, the selling stockholders will be responsible for underwriting discounts or
commissions or agents commissions. These sales may be at fixed prices, at prevailing market prices
at the time of the sale, at varying prices determined at the time of sale, or negotiated prices.
The selling stockholders may use any one or more of the following methods when selling shares:
|
|
|
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale; |
|
|
|
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
82
|
|
|
block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction; |
|
|
|
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
|
|
|
|
transactions otherwise than on these exchanges or systems or in the over-the-counter market; |
|
|
|
|
through the writing of options, whether such options are listed on
an options exchange or otherwise; |
|
|
|
|
an exchange distribution in accordance with the rules of the applicable exchange; |
|
|
|
|
privately negotiated transactions; |
|
|
|
|
short sales; |
|
|
|
|
broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share; |
|
|
|
|
a combination of any such methods of sale; and |
|
|
|
|
any other method permitted pursuant to applicable law. |
The selling stockholders may also sell shares under Rule 144 under the Securities Act, if
available, rather than under this prospectus.
The selling stockholders may also engage in short sales against the box, puts and calls
and other transactions in our securities or derivatives of our securities and may sell or deliver
shares in connection with these trades.
Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers
to participate in sales. Broker-dealers may receive commissions or discounts from the selling
stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions
and discounts to exceed what is customary in the types of transactions involved. Any profits on the
resale of shares of common stock by a broker-dealer acting as principal might be deemed to be
underwriting discounts or commissions under the Securities Act. Discounts, concessions, commissions
and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling
stockholder. The selling stockholders may agree to indemnify any agent, dealer or broker-dealer
that participates in transactions involving sales of the shares if liabilities are imposed on that
person under the Securities Act.
In connection with the sale of the shares of common stock or otherwise, the selling
stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in
short sales of the shares of common stock in the course of hedging in positions they assume. The
selling stockholders may also sell shares of common stock short and deliver shares of common stock
covered by this prospectus to close out short positions and to return borrowed shares in connection
with such short sales. The selling stockholders may also loan or pledge shares of common stock to
broker-dealers that in turn may sell such shares.
The selling stockholders may from time to time pledge or grant a security interest in
some or all of the shares of common stock owned by them and, if they default in the performance of
their secured obligations, the pledgees or secured parties may offer and sell the shares of common
stock from time to time under this prospectus after we have filed an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus.
83
The selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus and may sell the shares of common stock
from time to time under this prospectus after we have filed an amendment to this prospectus under
Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus. The selling stockholders also may transfer and donate the
shares of common stock in other circumstances in which case the transferees, donees, pledgees or
other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The selling stockholders and any broker-dealers or agents that are involved in selling
the shares may be deemed to be underwriters within the meaning of the Securities Act in
connection with such sales. In such event, any commissions paid, or any discounts or concessions
allowed to, such broker-dealers or agents and any profit realized on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts under the Securities
Act. At the time a particular offering of the shares of common stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate amount of shares of
common stock being offered and the terms of the offering, including the name or names of any
broker-dealers or agents, any discounts, commissions and other terms constituting compensation from
the selling stockholders and any discounts, commissions or concessions allowed or reallowed or paid
to broker-dealers. Under the securities laws of some states, the shares of common stock may be sold
in such states only through registered or licensed brokers or dealers. In addition, in some states
the shares of common stock may not be sold unless such shares have been registered or qualified for
sale in such state or an exemption from registration or qualification is available and is complied
with. There can be no assurance that any selling stockholder will sell any or all of the shares of
common stock registered pursuant to the shelf registration statement, of which this prospectus
forms a part.
Each selling stockholder has informed us that it does not have any agreement or
understanding, directly or indirectly, with any person to distribute the common stock. None of the
selling stockholders who are affiliates of broker-dealers, other than the initial purchasers in
private transactions, purchased the shares of common stock outside of the ordinary course of
business or, at the time of the purchase of the common stock, had any agreements, plans or
understandings, directly or indirectly, with any person to distribute the securities.
We are required to pay all fees and expenses incident to the registration of the shares
of common stock. Except as provided for indemnification of the selling stockholders, we are not
obligated to pay any of the expenses of any attorney or other advisor engaged by a selling
stockholder. We have agreed to indemnify the selling stockholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act.
If we are notified by any selling stockholder that any material arrangement has been
entered into with a broker-dealer for the sale of shares of common stock, if required, we will file
a supplement to this prospectus. If the selling stockholders use this prospectus for any sale of
the shares of common stock, they will be subject to the prospectus delivery requirements of the
Securities Act.
The anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of
our common stock and activities of the selling stockholders, which may limit the timing of
purchases and sales of any of the shares of common stock by the selling stockholders and any other
participating person. Regulation M may also restrict the ability of any person engaged in the
distribution of the shares of common stock to engage in passive market-making activities with
respect to the shares of common stock. Passive market making involves transactions in which a
market maker acts as both our underwriter and as a purchaser of our common stock in the secondary
market. All of the foregoing may affect the marketability of the shares of common stock and the
ability of any person or entity to engage in market-making activities with respect to the shares of
common stock.
Once sold under the registration statement, of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other than our affiliates.
The anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of
our common stock and activities of the selling stockholders.
84
LEGAL MATTERS
The validity of the common stock being offered hereby has been passed upon by Kummer Kaempfer
Bonner & Renshaw.
EXPERTS
The consolidated financial statements of Gran Tierra Energy as of December 31, 2005 and 2006,
and for the period of incorporation from January 26, 2005 to December 31, 2005, and for the year
ended December 31, 2006, in this prospectus have been audited by Deloitte & Touche LLP,
independent registered chartered accountants, as stated in their report appearing herein (which
report to the financial statements expresses an unqualified opinion and includes a separate report
titled Comments by Independent Registered Chartered Accountants on Canada-United States of America
Reporting Differences relating to substantial doubt on the Companys ability to continue as a going
concern) and are included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
The schedules of revenues, royalties and operating costs corresponding to the 14%
interest in the Palmar Largo joint venture included in this prospectus have been audited by
Deloitte & Co. SRL, an independent registered public accounting firm, as stated in their reports
appearing herein and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing. The studies to estimated proved oil reserves for
the years 2003, 2004 and 2005 referred to therein were prepared by Huddleston & Co., Inc.
The financial statements of Argosy Energy International, LP as of December 31, 2005 and
2004, and for each of the years then ended, have been included herein in reliance upon the report
of KPMG Ltda., independent public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The
information regarding Gran Tierras oil and gas reserves as of
December 31, 2006 has been reviewed by Gaffney,
Cline & Associates, independent consultants.
85
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Available Information
We file annual and quarterly reports, proxy statements and other information with the
Securities and Exchange Commission, or SEC. You may read and obtain copies of this information by
mail from the Public Reference Room of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C.
20549, at prescribed rates. Further information on the operation of the SECs Public Reference Room
in Washington, D.C. can be obtained by calling the SEC at 1-800-SEC-0330.
Our Internet website is www.grantierra.com.. On the Investor Relations page of that
website, we provide access to all of our reports and amendments to these reports that we furnish or
file with the SEC free of charge as soon as reasonably practicable after filing with the SEC.
Additionally, our SEC filings are available at the SECs website (www.sec.gov).
Our common stock is traded on the OTC Bulletin Board under the symbol GTRE.OB. In
addition, reports, proxy statements and other information concerning our company can be inspected
at our offices at 300, 611-10th Avenue S.W. Calgary, Alberta, Canada, T2R 0B2. Our Internet website
at www.grantierra.com contains information concerning us. The information at our Internet website
is not incorporated in this prospectus by reference, and you should not consider it a part of this
prospectus.
86
GRAN TIERRA ENERGY INC.
(FORMERLY GOLDSTRIKE, INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page(s) |
Consolidated Financial Statements for the year ended December 31, 2006 and for the period
from incorporation on January 26, 2005 to December 31, 2005: |
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F-3 |
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F-3 |
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F-4 |
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F-5 |
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F-6 |
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F-7 |
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F-8 - F-22 |
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F-23 - F-26 |
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F-27 |
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F-28 |
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F-29 |
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F-30 F-32 |
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F-33 |
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F-33 |
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F-34 |
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F-35 |
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F-36 |
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F-37 - F-50 |
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F-51 |
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F-52 |
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F-53 |
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F-54 |
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F-55 |
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F-56 |
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F-57 - F-73 |
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F-74 - F-76 |
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Schedule of Revenues, Royalties and Operating Cost corresponding to the 14% interest in
the Palmar Largo joint venture for the eight-month period ended
August 31, 2005:
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|
|
|
|
|
F-77 |
|
|
F-78 |
|
|
F-79 - F-81 |
|
F-1
|
|
|
|
|
Page(s) |
Schedule of Revenues, Royalties and Operating Cost corresponding to the 14% interest in
the Palmar Largo joint venture for the years ended December 31, 2004 and 2003 (audited) and
for the six months ended June 30, 2005 and 2004 (unaudited):
|
|
|
|
|
|
|
|
F-82 |
|
|
F-83 |
|
|
F-84 - F-87 |
Financial Statements for the Six Months Ended June 30, 2007 and 2006 (unaudited)
|
|
|
|
|
F-88 |
|
|
F-89 |
|
|
F-90 |
|
|
F-91 |
|
|
F-92 - F-101 |
F-2
Report of Independent Registered Chartered Accountants
To the Board of Directors and Shareholders of
Gran Tierra Energy Inc.
We have audited the consolidated balance sheet of Gran Tierra Energy Inc. as at December 31, 2006
and 2005 and the consolidated statements of operations and accumulated deficit, cash flows and
shareholders equity for the year ended December 31, 2006, and the period from incorporation on
January 26, 2005 to December 31, 2005. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all material respects,
the financial position of Gran Tierra Energy Inc. as at December 31, 2006 and 2005 and the results
of its operations and its cash flows for the year ended December 31, 2006, and the period from
incorporation on January 26, 2005 to December 31, 2005 in accordance with accounting principles
generally accepted in the United States of America.
The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion.
|
|
|
|
|
|
Calgary, Canada
|
|
/s/ Deloitte & Touche LLP |
March 23, 2007
|
|
Independent Registered Chartered Accountants |
Comments by Independent Registered Chartered Accountants on Canada-United States of America
Reporting Differences
The standards of the Public Company Accounting Oversight Board (United States) require the addition
of an explanatory paragraph (following the opinion paragraph) when the consolidated financial
statements are affected by conditions and events that cast a substantial doubt on the Companys
ability to continue as a going concern, such as those described in Note 1 to the consolidated
financial statements. Although we conducted our audits in accordance with both Canadian generally
accepted auditing standards and the standards of the Public Company Accounting Oversight Board
(United States), our report to the Board of Directors dated March 23, 2007 is expressed in
accordance with Canadian reporting standards which do not permit a reference to such conditions and
events in the auditors report when these are adequately disclosed in the financial statements.
|
|
|
|
|
|
Calgary, Canada
|
|
/s/ Deloitte & Touche LLP |
March 23, 2007
|
|
Independent Registered Chartered Accountants |
F-3
Gran Tierra Energy Inc.
Consolidated Statement of Operations and Accumulated Deficit
For the Year ended December 31, 2006 and
For the Period from Incorporation on January 26, 2005 to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
Period Ended December 31, |
|
|
2006 |
|
2005 |
|
|
(Expressed in U.S. dollars) |
|
REVENUE AND OTHER INCOME |
|
|
|
|
|
|
|
|
Oil sales |
|
$ |
11,645,553 |
|
|
$ |
946,098 |
|
Natural gas sales |
|
|
75,488 |
|
|
|
113,199 |
|
Interest |
|
|
351,872 |
|
|
|
|
|
|
|
|
|
12,072,913 |
|
|
|
1,059,297 |
|
|
EXPENSES |
|
|
|
|
|
|
|
|
Operating |
|
|
4,233,470 |
|
|
|
395,287 |
|
Depletion, depreciation and accretion |
|
|
4,088,437 |
|
|
|
462,119 |
|
General and administrative |
|
|
6,998,805 |
|
|
|
2,482,070 |
|
Liquidated damages |
|
|
1,527,988 |
|
|
|
|
|
Foreign exchange loss |
|
|
370,538 |
|
|
|
(31,271 |
) |
|
|
|
|
17,219,237 |
|
|
|
3,308,205 |
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAX |
|
|
(5,146,324 |
) |
|
|
(2,248,908 |
) |
Income tax |
|
|
(677,380 |
) |
|
|
29,228 |
|
|
NET LOSS |
|
$ |
(5,823,704 |
) |
|
$ |
(2,219,680 |
) |
|
|
|
|
|
|
|
|
|
|
ACCUMULATED DEFICIT, beginning of period |
|
|
(2,219,680 |
) |
|
|
|
|
|
ACCUMULATED DEFICIT, end of year |
|
$ |
(8,043,384 |
) |
|
$ |
(2,219,680 |
) |
|
|
|
|
|
|
|
|
|
|
NET LOSS PER
COMMON SHARE - BASIC & DILUTED |
|
|
(0.08 |
) |
|
|
(0.16 |
) |
Weighted
average common shares outstanding - basic
& diluted |
|
|
72,443,501 |
|
|
|
13,538,149 |
|
(See notes to the consolidated financial statements)
F-4
Gran Tierra Energy Inc.
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
Period Ended December 31, |
|
|
2006 |
|
2005 |
|
|
(Expressed in U.S. dollars) |
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
24,100,780 |
|
|
$ |
2,221,456 |
|
Restricted cash |
|
|
2,291,360 |
|
|
|
400,427 |
|
Accounts receivable |
|
|
5,089,561 |
|
|
|
808,960 |
|
Inventory |
|
|
811,991 |
|
|
|
447,012 |
|
Taxes receivable |
|
|
404,120 |
|
|
|
108,139 |
|
Prepaids |
|
|
676,524 |
|
|
|
42,701 |
|
|
Total Current Assets |
|
|
33,374,336 |
|
|
|
4,028,695 |
|
|
Oil and gas properties, using the full cost method of accounting |
|
|
|
|
|
|
|
|
Proved |
|
|
37,760,231 |
|
|
|
7,886,914 |
|
Unproved |
|
|
18,333,054 |
|
|
|
|
|
|
Total Oil and Gas Properties |
|
|
56,093,285 |
|
|
|
7,886,914 |
|
|
Other assets |
|
|
614,104 |
|
|
|
426,294 |
|
|
Total Property, Plant and Equipment |
|
|
56,707,389 |
|
|
|
8,313,208 |
|
|
Long term assets |
|
|
|
|
|
|
|
|
Deferred tax asset (Note 8) |
|
|
444,324 |
|
|
|
29,228 |
|
Long term investment |
|
|
379,678 |
|
|
|
|
|
Goodwill |
|
|
15,005,083 |
|
|
|
|
|
|
Total Long Term Assets |
|
|
15,829,085 |
|
|
|
29,228 |
|
|
Total Assets |
|
$ |
105,910,809 |
|
|
$ |
12,371,131 |
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
6,729,839 |
|
|
$ |
1,142,930 |
|
Accrued liabilities (Note 9) |
|
|
9,199,820 |
|
|
|
121,122 |
|
Liquidated damages |
|
|
1,527,988 |
|
|
|
|
|
Current taxes payable |
|
|
1,642,045 |
|
|
|
|
|
|
Total Current Liabilities |
|
|
19,099,692 |
|
|
|
1,264,052 |
|
|
Long term liabilities |
|
|
412,929 |
|
|
|
|
|
Deferred tax liability (Note 8) |
|
|
7,153,112 |
|
|
|
|
|
Deferred remittance taxes (Note 8) |
|
|
2,722,545 |
|
|
|
|
|
Asset retirement obligation |
|
|
327,752 |
|
|
|
67,732 |
|
|
Total Long Term Liabilities |
|
|
10,616,338 |
|
|
|
67,732 |
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Common shares (Note 6) |
|
|
95,455 |
|
|
|
43,285 |
|
(78,789,104 common shares and
16,666,661 exchangeable shares, par value
$0.001 per share, issued and outstanding) |
|
|
|
|
|
|
|
|
Additional paid in capital |
|
|
71,311,155 |
|
|
|
11,807,313 |
|
Warrants |
|
|
12,831,553 |
|
|
|
1,408,429 |
|
Accumulated deficit |
|
|
(8,043,384 |
) |
|
|
(2,219,680 |
) |
|
Total Shareholders Equity |
|
|
76,194,779 |
|
|
|
11,039,347 |
|
|
Total Liabilities and Shareholders Equity |
|
$ |
105,910,809 |
|
|
$ |
12,371,131 |
|
|
(See notes to the consolidated financial statements)
F-5
Gran Tierra Energy Inc.
Consolidated Statement of Cash Flow
For the Year ended December 31, 2006 and
For the Period from Incorporation on January 26, 2005 to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
Period Ended December 31, |
|
|
2006 |
|
2005 |
|
|
(Expressed in U.S. dollars) |
Operating Activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,823,704 |
) |
|
$ |
(2,219,680 |
) |
Adjustments to reconcile net loss to net cash provided
by operating activities: |
|
|
|
|
|
|
|
|
Depletion, depreciation and accretion |
|
|
4,088,437 |
|
|
|
462,119 |
|
Deferred tax liability |
|
|
2,535,043 |
|
|
|
(29,228 |
) |
Deferred remittance taxes |
|
|
(1,642,045 |
) |
|
|
|
|
Stock based compensation |
|
|
260,495 |
|
|
|
52,911 |
|
Net changes in non-cash working capital |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(4,280,601 |
) |
|
|
(808,960 |
) |
Inventory |
|
|
(364,983 |
) |
|
|
(447,012 |
) |
Prepaids and other current assets |
|
|
(633,823 |
) |
|
|
(42,701 |
) |
Accounts payable and accrued liabilities |
|
|
5,327,542 |
|
|
|
1,264,052 |
|
Taxes receivable |
|
|
(295,981 |
) |
|
|
(108,139 |
) |
|
Net cash provided by (used in) operating activities |
|
|
(829,618 |
) |
|
|
(1,876,638 |
) |
|
Investing Activities |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
(1,020,489 |
) |
|
|
(400,427 |
) |
Oil and gas property expenditures |
|
|
(18,300,518 |
) |
|
|
(8,707,595 |
) |
Argosy business acquisition |
|
|
(38,217,930 |
) |
|
|
|
|
Change in non-cash working capital due to
investing activities |
|
|
10,866,053 |
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(46,672,884 |
) |
|
|
(9,108,022 |
) |
|
Financing Activities
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
(1,280,993 |
) |
|
|
|
|
Proceeds from issuance of common stock |
|
|
70,662,820 |
|
|
|
13,206,116 |
|
|
Net cash provided by financing activities |
|
|
69,381,827 |
|
|
|
13,206,116 |
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
21,879,325 |
|
|
|
2,221,456 |
|
Cash and cash equivalents, beginning of period |
|
|
2,221,456 |
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
24,100,781 |
|
|
$ |
2,221,456 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
211,118 |
|
|
$ |
|
|
Cash paid for taxes |
|
$ |
741,380 |
|
|
$ |
|
|
|
|
|
$ |
952,498 |
|
|
$ |
|
|
|
(See notes to the consolidated financial statements)
F-6
Gran Tierra Energy Inc.
Consolidated Statement of Shareholders Equity
For the Year ended December 31, 2006 and
For the Period from Incorporation on January 26, 2005 to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
Period Ended December 31, |
|
|
2006 |
|
2005 |
|
|
(Expressed in U.S. dollars) |
Share Capital |
|
|
|
|
|
|
|
|
Balance beginning of period |
|
$ |
43,285 |
|
|
$ |
|
|
Issue of common shares |
|
|
52,170 |
|
|
|
43,285 |
|
|
Balance End of Period |
|
$ |
95,455 |
|
|
$ |
43,285 |
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in-capital |
|
|
|
|
|
|
|
|
Balance beginning of period |
|
|
11,807,313 |
|
|
|
|
|
Issue of common shares |
|
|
59,190,352 |
|
|
|
11,754,402 |
|
Redemption of warrants |
|
|
52,991 |
|
|
|
|
|
Stock based compensation expense |
|
|
260,495 |
|
|
|
52,911 |
|
|
Balance End of Period |
|
$ |
71,311,152 |
|
|
$ |
11,807,313 |
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
|
|
|
|
|
|
Balance beginning of period |
|
|
1,408,429 |
|
|
|
|
|
Issue of warrants |
|
|
11,476,118 |
|
|
|
1,408,429 |
|
Redemption of warrants |
|
|
(52,991 |
) |
|
|
|
|
|
Balance End of Period |
|
$ |
12,831,556 |
|
|
$ |
1,408,429 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated Deficit |
|
|
|
|
|
|
|
|
Balance beginning of period |
|
|
(2,219,680 |
) |
|
|
|
|
Net loss |
|
|
(5,823,704 |
) |
|
|
(2,219,680 |
) |
Balance End of Period |
|
$ |
(8,043,384 |
) |
|
$ |
(2,219,680 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity |
|
$ |
76,194,779 |
|
|
$ |
11,039,347 |
|
|
(See notes to the consolidated financial statements)
F-7
Gran Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
1. Description of Business and Going Concern
Gran Tierra Energy Inc., a Nevada corporation (the Company or Gran Tierra) is a publicly
traded oil and gas exploration and production company with operations in Argentina, Colombia and
Peru. On November 10, 2005, Goldstrike, Inc., the previous public reporting entity (Goldstrike),
Gran Tierra Energy Inc., a privately-held Alberta corporation (Gran Tierra Canada), and the
holders of Gran Tierra Canadas capital stock entered into a share purchase agreement, and
Goldstrike and Gran Tierra Goldstrike Inc. (Goldstrike Exchange Co.) entered into an assignment
agreement. In these two transactions, the holders of Gran Tierra Canadas capital stock acquired
shares of either Goldstrike common stock or exchangeable shares of Goldstrike Exchange Co., and
Goldstrike Exchange Co. acquired substantially all of Gran Tierra Canadas capital stock.
Immediately following the transactions, Goldstrike Exchange Co. acquired the remaining shares of
Gran Tierra Canada outstanding after the initial share exchange for shares of common stock of Gran
Tierra Energy Inc. using the same exchange ratio as used in the initial exchange. This two step
process was part of a single transaction whereby Gran Tierra Canada became a wholly-owned
subsidiary of Goldstrike. Additionally, Goldstrike changed its name to Gran Tierra Energy Inc.
with the management and business operations of Gran Tierra Canada, but remains incorporated in the
State of Nevada.
The Companys ability to continue as a going concern is dependent upon obtaining the necessary
financing to acquire, explore and develop oil and natural gas interests and generate profitable
operations from its oil and natural gas interests in the future. The Companys financial statements
as at and for the year ended December 31, 2006 have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities and commitments in the
normal course of business. The Company incurred a net loss of $5,823,704, used $829,618 of cash
flow in its operating activities for the year ended December 31, 2006, and had an accumulated
deficit of $8,043,384 as at December 31, 2006. The Company expects to incur substantial
expenditures to further its capital investment programs and the Companys existing cash balance and
cash flow from operating activities may not be sufficient to satisfy its current obligations,
including liquidated damages obligations, and meet its capital investment commitments.
To provide financing for Gran Tierras ongoing operations, the Company secured a $50 million
credit facility with Standard Bank Plc on February 28, 2007, which will provide additional
financing for the Companys future operations. No funds have been withdrawn from the facility, at
this time.
The Companys intention is to build a portfolio of oil and natural gas production,
development, and exploration opportunities using the capital raised during 2006, cash provided by
future operating activities and the available credit facility.
Should the going concern assumption not be appropriate and the Company is not able to realize
its assets and settle its liabilities and commitments in the normal course of operations, these
consolidated financial statements would require adjustments to the amounts and classifications of
assets and liabilities, and these adjustments could be significant.
2. Significant Accounting Policies
The consolidated financial statements have been prepared in accordance with generally accepted
accounting principles in the United States of America (GAAP). The preparation of financial
statements in accordance with GAAP requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements, and revenues and expenses during the reporting
period. The Company believes that the information and disclosures presented are adequate to ensure
the information presented is not misleading.
F-8
Gran
Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
Significant accounting policies are:
Basis of consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated. The Company
proportionately consolidates its undivided interest in oil and gas exploration and development
joint ventures.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Reserves, impairment, stock option expense, deferred
taxes and any assumptions associated with valuation of oil and gas properties are all subject to
estimation in the Companys financial results.
Foreign currency translation
The functional currency of the Company, including its subsidiaries in Argentina, Colombia and Peru,
is the United States dollar. The balance sheet accounts of the Companys foreign operations are
translated into US dollars using the period-end exchange rate, while income, expenses and cash
flows are translated at the average exchange rate for the period. Gains and losses resulting from
foreign currency transactions, which are transactions denominated in a currency other than the
entitys functional currency, are included in the consolidated statement of operations and deficit.
Fair value of financial instruments
The Companys financial instruments are cash and cash equivalents, accounts receivable, taxes
receivable, accounts payable, current taxes payable, and accrued liabilities. The fair values of
these financial instruments, other than taxes receivable, approximate their carrying values due to
their immediate or short-term nature. The fair value of taxes receivable is not expected to differ
significantly from its carrying value.
Restricted cash
Restricted cash consists primarily of two deposits:
|
a) |
|
Standard Bank holds a $1,009,009 restricted deposit for the Company. The funds were
held as a guarantee for two letters of credit issued in Peru for work commitments for Gran
Tierras land holdings, blocks 122 and 128. Export Development Canada, issued a guarantee
on Gran Tierras behalf in February 2007, which effectively replaced these guaranteed funds
and these the funds were returned to Gran Tierra as unrestricted cash in February, 2007. |
|
|
b) |
|
Funds are being held in escrow, by Bank of America, pending a request from Gran Tierra
to the Alberta Securities Commission requesting an exemption from prospectus requirements
for the trading of common shares of Gran Tierra for purchasers resident in Alberta under
available accredited investor exemptions in the private placement completed in June 2006.
There is $1,280,951 in funds being held in escrow awaiting
satisfaction of this condition, which may require repayment to these
shareholders. |
Inventory
Inventory consists of crude oil in tanks and is valued at the lower of cost or market value. The
cost of inventory is determined using the weighted average method. Inventory costs include
expenditures incurred to produce, upgrade and transport the product to the storage facilities.
F-9
Gran
Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
Taxes receivable & payable
The Company calculates two taxes for its business activities in Argentina. First, a minimum
presumed income is calculated by applying a one percent tax rate to taxable assets as of the end of
the period. If the tax on minimum presumed income exceeds income tax payable during the year, the
excess is considered a prepayment of future income taxes due over the next ten year period.
Secondly, a third party tax substitutable is recorded. The government ensures each company, with
foreign ownership, withholds taxes based on the assumption that profits will be transferred to the
owners. If profits are not transferred, the taxes paid may be used to offset tax liabilities in
the future.
Oil and natural gas properties
The Company uses the full cost method of accounting for its investment in oil and natural gas
properties. Separate cost centers are maintained for each country in which the Company incurs
costs. Under this method, the Company capitalizes all acquisition, exploration and development
costs incurred for the purpose of finding oil and natural gas reserves, including salaries,
benefits and other internal costs directly attributable to these activities. Costs associated with
production and general corporate activities, however, are expensed in the period incurred. Interest
costs related to unproved properties and properties under development are also capitalized to oil
and natural gas properties. Unless a significant portion of the Companys proved reserve quantities
in a particular country are sold (greater than 25 percent), proceeds from the sale of oil and
natural gas properties are accounted for as a reduction to capitalized costs, and gains and losses
are not recognized.
The Company computes depletion of oil and natural gas properties on a quarterly basis using the
unit-of-production method based upon production and estimates of proved reserve quantities.
Unproved properties are excluded from the amortizable base until evaluated. The cost of exploratory
dry wells is transferred to proved properties and thus subject to amortization immediately upon
determination that a well is dry in those countries where proved reserves exist. Future
development costs are added to the amortizable base.
In countries where the Company has not recorded proved reserves, all costs associated with a
prospect are considered quarterly for impairment upon full evaluation of such prospect or play.
This evaluation considers among other factors, seismic data, requirements to relinquish acreage,
drilling results, remaining time in the commitment period, remaining capital plans, and political,
economic, and market conditions. Geological and geophysical (G&G) costs are recorded in proved
properties for development projects and therefore subject to amortization as incurred.
In exploration areas, G&G costs are capitalized in unproved property and evaluated as part of the
total capitalized costs associated with a prospect.
The Company performs a ceiling test calculation each quarter in accordance with SEC Regulation S-X
Rule 4-10. In performing its quarterly ceiling test, the Company limits, on a country-by-country
basis, the capitalized costs of proved oil and natural gas properties, net of accumulated depletion
and deferred income taxes, to the estimated future net cash flows from proved oil and natural gas
reserves discounted at ten percent, net of related tax effects, plus the lower of cost or fair
value of unproved properties included in the costs being amortized. If capitalized costs exceed
this limit, the excess is charged as additional depletion expense. The Company calculates future
net cash flows by applying end-of-the-period prices except in those instances where future natural
gas or oil sales are covered by physical contract terms providing for higher or lower amounts.
Unproved properties are assessed quarterly for possible impairments. If an impairment has occurred,
the impairment is transferred to proved properties. For prospects where a reserve base has not yet
been established, the impairment is charged to earnings.
F-10
Gran
Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
Asset retirement obligations
The Company provides for future asset retirement obligations on its oil and natural gas properties
based on estimates established by current legislation. The asset retirement obligation is initially
measured at fair value and capitalized to capital assets as an asset retirement cost. The asset
retirement obligation accretes until the time the asset retirement obligation is expected to settle
while the asset retirement cost is amortized over the useful life of the underlying capital assets.
The amortization of the asset retirement cost and the accretion of the asset retirement obligation
will be included in depletion, depreciation and accretion. Actual asset retirement costs are
recorded against the obligation when incurred. Any difference between the recorded asset retirement
obligations and the actual retirement costs incurred is recorded as a gain or loss in the period of
settlement.
Capital assets
Capital assets, including additions and replacements, are recorded at cost upon acquisition. The
cost of repairs and maintenance is charged to expense as incurred. Depreciation is provided using
the declining-balance-basis at the following annual rates:
|
|
|
|
|
Computer equipment |
|
|
30 |
% |
Furniture and Fixtures |
|
|
30 |
% |
Automobiles |
|
|
30 |
% |
Revenue recognition
Revenue from the production of crude oil and natural gas is recognized when title passes to
the customer and when collection of the revenue is probable. For the Companys Colombian
operations, Gran Tierras customers take title when the crude oil is transferred to their pipeline
at the plant gate. In Argentina, Gran Tierra transports product from the field to the customers
refinery by truck. Revenue represents the Companys share and is recorded net of royalty payments
to governments and other mineral interest owners.
Goodwill
Goodwill represents the excess of purchase price of business combinations over the fair value of
net assets acquired and is tested for impairment at least annually unless business events indicate
an impairment test is required. For example, an impairment test would be conducted if an asset of
significant value was sold or disposed of in the cost center. The impairment test requires
allocating goodwill and all other assets and liabilities to assigned reporting units. The fair
value of each reporting unit is estimated and compared to the net book value of the reporting unit.
If the estimated fair value of the reporting unit is less than the net book value, including
goodwill, then the goodwill is written down to the implied fair value of the goodwill through a
charge to expense. Because quoted market prices are not available for the Companys reporting
units, the fair values of the reporting units are estimated based upon several valuation analyses,
including comparable companies, comparable transactions and premiums paid. The goodwill on the
Companys financial statements was a result of the Argosy acquisition, and relates entirely to the
Colombia reporting segment.
F-11
Gran
Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
Income taxes
Deferred income taxes are recognized using the asset and liability method, whereby deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences
between the consolidated financial statement carrying amounts of existing assets and liabilities
and their respective tax base, and operating loss and tax credit carry forwards. Valuation
allowances are provided if, after considering available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized.
Loss per share
Basic loss per share calculations are based on the loss attributable to common shareholders for the
period divided by the weighted average number of common shares issued and outstanding during the
period. The diluted loss per share calculation is based on the weighted average number of common
shares outstanding during the period, plus the effects of dilutive common share equivalents. This
method requires that the dilutive effect of outstanding options and warrants issued should be
calculated using the treasury stock method. This method assumes that all common share equivalents
have been exercised at the beginning of the period (or at the time of issuance, if later), and that
the funds obtained thereby were used to purchase common shares of the Company at the average
trading price of common shares during the period. At December 31, 2006, 2,700,000 options and
70,313,830 warrants to purchase 35,156,915 common shares were excluded from the diluted loss per
share calculation as the instruments were anti-dilutive.
Stock-based compensation
The Company follows the fair-value method of accounting for stock options granted to directors,
officers and employees pursuant to Financial Accounting Standards Board Statement 123 (Revised).
Stock-based compensation expense is included in general and administrative expense with a
corresponding increase to contributed surplus. Compensation expense for options granted is based on
the estimated fair value at the time of grant and the expense is recognized over the expected life
of the option.
New Accounting Pronouncements
Effective January 1, 2006, the Company adopted the SEC issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when quantifying Misstatements in Current Year
Financial Statements (SAB 108). SAB 108 requires companies to evaluate the materiality of
identified unadjusted errors on each financial statement and related financial statement disclosure
using both the rollover approach and the iron curtain approach. The rollover approach quantifies
misstatements based on the effects of correcting the misstatement existing in the balance sheet at
the end of the current year, irrespective of the misstatements year(s) of origin. Financial
statements would require adjustment when either approach results in quantifying a misstatement that
is material. Correcting prior year financial statements for immaterial errors would not require
previously filed reports to be amended. The adoption of SAB 108 did not have a material impact on
the Companys consolidated financial statements.
In February 2006, the FASB issued Statement 155, Accounting for Certain Hybrid Instruments, which
amends Statement 133, Accounting for Derivative Instruments and Hedging Activities, and Statement
140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
Statement 155 permits fair value re-measurement for any hybrid financial instrument that contains
an embedded derivative that otherwise would require bifurcation from its host contract in
accordance with Statement 133. Statement 155 also clarifies other provisions of Statement 133 and
Statement 140. This statement is effective for all financial instruments acquired or issued in
fiscal years beginning after September 15, 2006. The Company does not expect adoption of this
statement will have a material impact on its results of operations or financial position.
F-12
Gran
Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
In July 2006, FASB issued FIN 48 (FASB Interpretation Number) Accounting for Uncertainty in Income
Taxes with respect to FAS 109 Accounting for Income Taxes regarding accounting for and disclosure
of uncertain tax positions. This guidance seeks to reduce the diversity in practice associated with
certain aspects of the recognition and measurement related to accounting for income taxes. This
interpretation is effective for fiscal years beginning after December 15, 2006. The Company does
not expect adoption of this statement will have a material impact on its results of operations or
financial position.
In September 2006, FASB issued Statement 157, Fair Value Measurements. Statement 157 defines fair
value, establishes a framework for measuring fair value under US generally accepted accounting
principles and expands disclosures about fair value measurements. This statement is effective for
fiscal years beginning after November 15, 2007. The Company does not expect the adoption of this
statement will have a material impact on its results of operations or financial position.
In December 2006, FASB issued Staff Position (FSP) EITF 00-19-2, Accounting for Registration
Payment Arrangements. FSP EITF 00-19-2 specifies that the contingent obligation to make future
payments or otherwise transfer consideration under a registration payment arrangement, whether
issued as a separate agreement or included as a provision of a financial instrument or other
agreement, should be separately recognized and measured in accordance with FASB Statement No. 5,
Accounting for Contingencies. This FSP is effective for fiscal years beginning after December 15,
2006. The Company early adopted this FSP during the year ended December 31, 2006 and recorded
$1,258,000 in liquidated damages as an expense in the consolidated statement of operations and
deficit and the same amount in accrued liabilities at December 31, 2006.
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (FAS 159). FAS 159 permits an entity to elect fair value as the initial and
subsequent measurement attribute for many financial assets and liabilities. Entities electing the
fair value option would be required to recognize changes in fair value in earnings. Entities
electing the fair value option are required to distinguish on the face of the statement of
financial position, the fair value of assets and liabilities for which the fair value option has
been elected and similar assets and liabilities measured using another measurement attribute. FAS
159 is effective for the Companys fiscal year 2008. The adjustment to reflect the difference
between the fair value and the carrying amount would be accounted for as a cumulative-effect
adjustment to retained earnings as of the date of initial adoption. The Company does not expect the
adoption of this statement will have a material impact on its results of operations or financial
position
3. Business Combination
Gran Tierra entered into a Securities Purchase Agreement dated May 25, 2006 with Crosby Capital LLC
(Crosby) to acquire all of the limited partnership interests of Argosy Energy International
(Argosy) and all of the issued and outstanding capital stock of Argosy Energy Corp. On June 20,
2006 Gran Tierra closed the Argosy acquisition and paid consideration to Crosby consisting of $37.5
million cash, 870,647 shares of the Companys common stock and overriding and net profit interests
in certain of Argosys assets valued at $1 million. The value of the overriding and net profit
interests was based on the present value of expected future cash flows. All of Argosy Energy
Internationals assets are in Colombia.
F-13
Gran
Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
The acquisition has been accounted for using the purchase method, and the results of Argosy Energy
International have been consolidated with Gran Tierra Energy from June 20, 2006. The following
table shows the allocation of the purchase price based on the fair values of the assets and
liabilities acquired:
|
|
|
|
|
|
|
December 31, 2006 |
|
|
Cash Paid |
|
$ |
36,414,385 |
|
Common Shares Issued |
|
|
1,305,971 |
|
Transaction Costs |
|
|
497,574 |
|
|
|
|
|
|
|
Total Purchase Price |
|
|
38,217,930 |
|
|
|
|
|
|
|
Purchase Price allocated: |
|
|
|
|
Oil and Gas Assets |
|
|
32,553,211 |
|
Goodwill (1) |
|
|
15,005,083 |
|
Accounts Receivable |
|
|
5,361,887 |
|
Inventories (2) |
|
|
567,355 |
|
Long Term Investments |
|
|
6,772 |
|
Accounts Payable and Accrued Liabilities (3) |
|
|
(6,085,109 |
) |
|
|
|
|
|
Long Term Liabilities |
|
|
(49,763 |
) |
|
|
|
|
|
Deferred Tax Liabilities |
|
|
(9,141,506 |
) |
|
|
|
|
|
|
Total Purchase Price allocated |
|
$ |
38,217,930 |
|
|
|
|
|
(1) |
|
Goodwill is not deductible for tax purposes. |
|
(2) |
|
Inventory is comprised of $497,000 operational equipment and $70,000 of oil inventory. |
|
(3) |
|
Colombia does not attract a reclamation liability because the producing lands are returned to
the government at the end of the
production contract and any remaining production and reclamation are not the responsibility of
the Company. |
The pro forma results for the period ended December 31, 2005 and December 31, 2006 are shown
below, as if the acquisition had occurred on January 26, 2005 and January 1, 2006. Pro forma
results are not indicative of actual results or future performance.
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
Revenue |
|
$ |
18,775,357 |
|
|
$ |
12,950,000 |
|
Net Income (loss) |
|
|
294,105 |
|
|
|
1,569,000 |
|
Earnings per share (Basic) |
|
|
0.01 |
|
|
|
0.04 |
|
Earnings per share (Diluted) |
|
|
0.01 |
|
|
|
0.03 |
|
F-14
Gran
Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
4. Segment and Geographic Reporting
The Companys reportable segments are Argentina and Colombia. The Company is primarily engaged in
the exploration and production of oil and natural gas. Peru is not a reportable segment because
the level of activity on these land holdings is insignificant at this time.
The Colombia assets were acquired on June 20, 2006, and the Argentina assets were acquired on
September 1, 2005. Therefore the comparable segmented information for 2005 includes only four
months of operations for Argentina, and there is no comparable 2005 information for Colombia.
The following tables present information on the Companys reportable geographic segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 |
|
|
Year Ended December 31, 2005 |
|
|
|
|
|
|
Corporate |
|
Colombia |
|
Argentina |
|
Total |
|
|
Corporate |
|
Argentina |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
351,872 |
|
|
$ |
6,612,190 |
|
|
$ |
5,108,851 |
|
|
$ |
12,072,913 |
|
|
|
$ |
|
|
|
$ |
1,059,297 |
|
|
$ |
1,059,297 |
|
Depreciation, Depletion & Accretion |
|
|
43,576 |
|
|
|
2,494,317 |
|
|
|
1,550,544 |
|
|
|
4,088,437 |
|
|
|
|
9,097 |
|
|
|
453,022 |
|
|
|
462,119 |
|
Segment Income (Loss) before income tax |
|
|
(6,006,622 |
) |
|
|
1,394,419 |
|
|
|
(534,121 |
) |
|
|
(5,146,324 |
) |
|
|
|
(2,136,463 |
) |
|
|
(112,445 |
) |
|
|
(2,248,908 |
) |
Segment Capital Expenditures |
|
|
256,482 |
|
|
|
34,053,289 |
|
|
|
14,084,410 |
|
|
|
48,394,181 |
|
|
|
|
131,200 |
|
|
|
8,182,008 |
|
|
|
8,313,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 |
|
Year Ended December 31, 2005 |
|
|
|
|
|
|
Corporate |
|
Colombia |
|
Argentina |
|
Total |
|
|
Corporate |
|
Argentina |
|
Total |
|
|
|
|
Property, Plant & equipment |
|
$ |
387,682 |
|
|
$ |
34,053,289 |
|
|
$ |
22,266,418 |
|
|
$ |
56,707,389 |
|
|
|
$ |
131,200 |
|
|
$ |
8,182,008 |
|
|
$ |
8,313,208 |
|
Goodwill |
|
|
|
|
|
|
15,005,083 |
|
|
|
|
|
|
|
15,005,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
387,682 |
|
|
|
49,058,372 |
|
|
|
22,266,418 |
|
|
|
71,712,472 |
|
|
|
|
131,200 |
|
|
|
8,182,008 |
|
|
|
8,313,208 |
|
|
|
|
|
The following is a reconciliation of income (loss) before income taxes for reportable segments
to consolidated loss before income taxes:
|
|
|
|
|
|
|
|
|
|
|
Dec 31, 2006 |
|
Dec 31, 2005 |
|
Income (loss) before taxes, |
|
|
|
|
|
|
|
|
Colombia |
|
$ |
1,364,419 |
|
|
$ |
|
|
Argentina |
|
|
(534,121 |
) |
|
|
(112,445 |
) |
Corporate |
|
|
(5,976,622 |
) |
|
|
(2,136,463 |
) |
|
Consolidated Loss Before Taxes |
|
|
(5,146,324 |
) |
|
|
(2,248,908 |
) |
|
The following is a reconciliation of reportable net property, plant and equipment to
consolidated net property, plant and equipment:
|
|
|
|
|
|
|
|
|
|
|
Dec 31, 2006 |
|
|
Dec 31, 2005 |
|
|
Total Capital by Segment, |
|
|
|
|
|
|
|
|
Colombia, PP&E |
|
$ |
34,053,289 |
|
|
$ |
|
|
Argentina, PP&E |
|
|
22,266,418 |
|
|
|
8,182,008 |
|
Corporate |
|
|
387,682 |
|
|
|
131,200 |
|
|
Consolidated PP&E |
|
|
56,707,389 |
|
|
|
8,313,208 |
|
|
F-15
Gran
Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
5. Capital Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
Net Book |
|
|
|
|
|
|
Accumulated |
|
Net Book |
|
|
Cost |
|
DD&A |
|
Value |
|
|
Cost |
|
DD&A |
|
Value |
|
|
|
|
Oil and natural gas properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proven |
|
$ |
41,191,275 |
|
|
$ |
(3,431,044 |
) |
|
$ |
37,760,231 |
|
|
|
$ |
8,331,767 |
|
|
$ |
(444,853 |
) |
|
$ |
7,886,914 |
|
Unproven |
|
|
18,333,054 |
|
|
|
|
|
|
|
18,333,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials and supplies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,177 |
|
|
|
|
|
|
|
300,177 |
|
Furniture and Fixtures |
|
|
289,353 |
|
|
|
(47,637 |
) |
|
|
241,716 |
|
|
|
|
20,167 |
|
|
|
(4,805 |
) |
|
|
15,362 |
|
Computer equipment |
|
|
912,645 |
|
|
|
(592,646 |
) |
|
|
319,999 |
|
|
|
|
73,682 |
|
|
|
(2,649 |
) |
|
|
71,033 |
|
Automobiles |
|
|
69,499 |
|
|
|
(17,110 |
) |
|
|
52,389 |
|
|
|
|
49,534 |
|
|
|
(9,812 |
) |
|
|
39,722 |
|
|
|
|
|
Total Capital Assets |
|
|
60,795,826 |
|
|
|
(4,088,437 |
) |
|
|
56,707,389 |
|
|
|
|
8,775,327 |
|
|
|
(462,119 |
) |
|
|
8,313,208 |
|
|
|
|
|
The unproven oil and natural gas properties consist of lands held in both Colombia and
Argentina. The Company has $14.4 million in unproved assets in Colombia and $3.9 million of
unproved assets in Argentina. These properties are being held for their exploration value. The
Company has capitalized $138,383 of general and administrative in the Colombian asset value and
$3,921 of capitalized general and administrative expenses in the Argentina asset value.
6. Share Capital
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Amount |
|
|
|
Shares |
|
|
USD |
|
|
Balance, January 1, 2005 |
|
|
|
|
|
$ |
|
|
|
Original Goldstrike shares |
|
|
9,000,006 |
|
|
|
9,000 |
|
Issued in connection with Goldstrike acquisition |
|
|
1,269,841 |
|
|
|
1,270 |
|
Exchangeable shares issued in connection with Goldstrike acquisition |
|
|
18,730,159 |
|
|
|
18,730 |
|
Private placement September and October 2005 |
|
|
12,941,884 |
|
|
|
12,942 |
|
Private placement December 2005 |
|
|
1,343,222 |
|
|
|
1,343 |
|
|
Balance, December 31, 2005 |
|
|
43,285,112 |
|
|
|
43,285 |
|
|
Private placement February 2006 |
|
|
762,500 |
|
|
|
763 |
|
Private placement June 2006 |
|
|
50,000,000 |
|
|
|
50,000 |
|
Issued on exercise of warrants |
|
|
287,506 |
|
|
|
288 |
|
Exchangeable shares retracted |
|
|
(2,063,498 |
) |
|
|
(2,063 |
) |
Issued on retraction of exchangeable shares |
|
|
2,063,498 |
|
|
|
2,063 |
|
Issued on Argosy acquisition |
|
|
870,647 |
|
|
|
870 |
|
Issued as private placement fees |
|
|
250,000 |
|
|
|
250 |
|
|
Balance, December 31, 2006 |
|
|
95,455,765 |
|
|
|
95,455 |
|
|
Share capital
Share capital consists of 79,789,104 common voting shares of the Company and 16,666,661
exchangeable shares of Goldstrike Exchange Co. (collectively, common stock). Each exchangeable
share is exchangeable only into one common voting share of the Company. The holders of common stock
are
F-16
Gran
Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
entitled to one vote for each share on all matters submitted to a stockholder vote and are entitled
to share in all dividends that the board of directors, in its discretion, declares from legally
available funds. The holders of common stock have no pre-emptive rights, no conversion rights, and
there are no redemption provisions applicable to the common stock.
Warrants
At December 31, 2006, the Company had 14,472,622 warrants outstanding to purchase 7,236,311 common
shares for $1.25 per share and 55,841,208 warrants outstanding to purchase 27,920,604 common shares
for $1.75 per share.
Registration Rights Payments
The shares and warrants have registration rights associated with their issuance pursuant to which
the Company agreed to register for resale the shares and warrants. In the event that the
registration statements are not declared effective by the SEC by specified dates, the Company is
required to pay liquidated damages to the purchasers of the shares and warrants.
The 15,047,606 units issued in the fourth quarter of 2005 and first quarter of 2006 have liquidated
damages payable in the amount of 1% of the purchase price for each unit per month payable each
month the registration statement is not declared effective beyond the mandatory effective date
(July 10th, 2006). The total amount recorded at December 31, 2006 for these liquidated
damages was $269,923. There are no further liabilities associated with these shares. As of
February 14, 2007 the first registration statement was declared effective by the SEC.
The 50,000,000 units issued on June 20, 2006 have liquidated damages payable each month the
registration statement is not declared effective beyond November 17, 2006, calculated as follows:
1% of the purchase price for the 1st month after the mandatory effective date
1.5% of the purchase price for the 2nd and 3rd month after the mandatory effective date
2% of the purchase price for the 4th and 5th months after the mandatory effective date and
1/2% increase each quarter thereafter
The investors have the right to take the liquidated damages either in cash or in shares of the
Companys common stock, at their election. If the Company fails to pay the cash payment to an
investor entitled thereto by the due date, the Company will pay interest thereon at a rate of 12%
per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to such
investor, accruing daily from the
date such liquidated damages are due until such amounts, plus all such interest thereon, are paid
in full. The total amount of liquidated damages shall not exceed 25% of the purchase price for the
units or $18,750,000.
The Company filed the second registration statement but the registration statement has not yet
become effective and, as a result, the Company had incurred the obligation to pay approximately
$1,258,000 in liquidated damages as at December 31, 2006, which amount has been recorded as
liquidated damages expense in the consolidated statement of operations.
F-17
Gran Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
Stock options
The only equity compensation plan approved by the Companys stockholders is its 2005 Equity
Incentive Plan, under which the Companys board of directors is authorized to issue options or
other rights to acquire up to 2,000,000 shares of the Companys common stock. On November 8,
2006, the Companys board of directors granted options to acquire 1,180,000 shares of common stock
at an exercise price of $1.27 per share, which options cannot be exercised, and will be rescinded,
if the Companys stockholders do not approve an increase in the number of shares authorized under
the 2005 Equity Incentive Plan sufficient to permit the issuance of the shares issuable upon
exercise of these additional stock options.
The Company has granted options to purchase common shares to certain directors, officers, employees
and consultants. Each option permits the holder to purchase one common share at the stated exercise
price. The options vest over three years and have a term of ten years, or end of service to the
Company, which ever occurs first. At the time of grant, the exercise price equals the market price.
The following options have been granted:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Weighted Average |
|
|
Outstanding |
|
Exercise Price |
|
|
Options |
|
$/Option |
|
Outstanding, beginning of period |
|
|
1,940,000 |
|
|
$ |
1.14 |
|
Granted, Nov 8, 2006 |
|
|
1,180,000 |
|
|
$ |
1.27 |
|
Cancelled |
|
|
(420,000 |
) |
|
$ |
(1.84 |
) |
|
Outstanding, end of period |
|
|
2,700,000 |
|
|
$ |
1.09 |
|
|
The table below summarizes unexercised stock options at December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted |
|
|
|
Outstanding |
|
|
Average |
|
Exercise Price ($/option) |
|
Options |
|
|
Expiry Years |
|
$0.80 |
|
|
1,420,000 |
|
|
|
9.0 |
|
$1.27 |
|
|
1,180,000 |
|
|
|
10.0 |
|
$2.62 |
|
|
100,000 |
|
|
|
9.0 |
|
Total |
|
|
2,700,000 |
|
|
|
9.4 |
|
Two stock option grants have been made subsequent to December 31, 2006. On January 2, 2007,
225,000 stock options were granted to a new officer of the Company as part of his initial
compensation package. On February 22, 2007, 415,000 stock options were granted to a group of key
employees in Argentina and Colombia, as part of their 2007 compensation package. In total, the
Company has 2,700,000 stock options granted and outstanding. No stock options have been exercised
at this time.
Total stock-based compensation expense included in general and administrative expense in the
consolidated statement of operations was $260,495. The Black-Scholes option pricing model was used
to determine the fair value of the option grants with the following assumptions:
|
|
|
|
|
Dividend yield ($ per share) |
|
$ |
0.00 |
|
Volatility (%) |
|
|
68 |
% |
Risk-free interest rate (%) |
|
|
2.33 |
% |
Expected life (years) |
|
|
3 |
|
Forfeiture percentage (% per year) |
|
|
10 |
% |
The weighted average fair value per option is $0.43.
F-18
Gran Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
7. Asset Retirement Obligations
Changes in the carrying amounts of the asset retirement obligations associated with the Companys
oil and natural gas properties are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
Balance, beginning of period |
|
|
67,732 |
|
|
|
|
|
|
Obligations assumed with property acquisitions |
|
|
209,314 |
|
|
|
66,931 |
|
Expenditures made on asset retirements |
|
|
5,061 |
|
|
|
|
|
Accretion |
|
|
75,645 |
|
|
|
801 |
|
|
Balance, end of period |
|
|
357,752 |
|
|
|
67,732 |
|
|
8. Income Taxes
The Company has accumulated losses of approximately $8,043,384 that can be carried forward and
applied against future taxable income. A valuation allowance has been taken for the potential
income tax benefit associated with the losses incurred by the Company, due to uncertainty of
utilization of the tax losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentina |
|
Colombia |
|
Total |
|
Opening Balance, January 1, 2006 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Argentina - Deferred Remittance Tax (1) |
|
|
198,545 |
|
|
|
2,524,000 |
|
|
|
2,722,545 |
|
Colombia - Deferred Tax Liability (2) |
|
|
|
|
|
|
7,153,112 |
|
|
|
7,153,112 |
|
|
Closing Balance, December 31, 2006 |
|
|
198,545 |
|
|
|
9,677,112 |
|
|
|
9,875,657 |
|
|
|
|
|
(1) |
|
Deferred Remittance Tax: Presumptive income and equity taxes are based on equity levels in
Colombia and Argentina and can be recovered against income taxes in future periods, and can be
carried forward for five years. |
|
|
|
As of January 1, 2007, the remittance tax requirement was eliminated in Colombia. A review is
underway to determine whether the Company can remove the liability from its financial records.
A decision will be reached by the end of the first quarter, 2007. |
|
|
|
Based on tax reforms made effective January 1, 2007, tax losses may be carried forward without
limitation to offset taxable income; the presumptive income rate was reduced from six percent to
three percent on the prior tax years net tax equity; the seven percent remittance tax was
eliminated; a 1.2 percent equity tax was introduced, the income tax rate was reduced from 38 .5
percent to 34 percent in 2007, and to 33 percent for subsequent years; and, the special
deduction for the acquisition or construction of real fixed assets was increased to 40 percent
from 30 percent. |
|
(2) |
|
Deferred tax liability is the unamortized portion of the Argosy purchase price allocation. |
F-19
Gran Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
The income tax expense (recovery) reported differs from the amount computed by applying the
statutory rate to loss before income taxes for the following reasons:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2006 |
|
|
2005 |
|
|
Loss before income taxes |
|
$ |
(5,146,324 |
) |
|
$ |
(2,248,908 |
) |
Statutory income tax rate |
|
|
34 |
% |
|
|
34 |
% |
Income tax benefit expected |
|
|
(1,749,750 |
) |
|
|
(764,628 |
) |
Stock-based compensation |
|
|
260,495 |
|
|
|
17,990 |
|
Tax losses in other jurisdictions, not recognized |
|
|
811,875 |
|
|
|
717,410 |
|
|
Income tax expense |
|
|
(677,380 |
) |
|
|
(29,228 |
) |
|
The deferred income tax liability of $7,153,112 on the balance sheet is related entirely to
Colombia assets, for the following items:
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
Property, Plant and Equipment * |
|
$ |
22,145,657 |
|
Colombia Tax Rate |
|
|
35 |
% |
Total Deferred Tax |
|
|
7,750,980 |
|
Less Amortization |
|
|
(597,868 |
) |
|
Net Deferred Tax |
|
$ |
7,153,112 |
|
|
|
|
|
* |
|
Change in NBV due to acquisition of Argosy assets. |
9. Accrued Liabilities and Accounts Payable
The changes in accrued liabilities and accounts payable are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 |
|
|
Year Ended December 31, 2005 |
|
|
Corporate |
|
Colombia |
|
Argentina |
|
Total |
|
|
Corporate |
|
Argentina |
|
Total |
|
|
|
|
Capital Expenditures |
|
$ |
|
|
|
$ |
5,344,339 |
|
|
$ |
5,521,714 |
|
|
$ |
10,866,053 |
|
|
|
$ |
|
|
|
$ |
893,372 |
|
|
$ |
893,372 |
|
Payroll related expenses |
|
|
664,957 |
|
|
|
333,679 |
|
|
|
313,589 |
|
|
|
1,312,225 |
|
|
|
|
220,680 |
|
|
|
150,000 |
|
|
|
370,680 |
|
Audit, legal, consultants |
|
|
715,332 |
|
|
|
|
|
|
|
290,915 |
|
|
|
1,006,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due Joint Venture Partners |
|
|
|
|
|
|
2,745,134 |
|
|
|
|
|
|
|
2,745,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidated Damages |
|
|
1,527,988 |
|
|
|
|
|
|
|
|
|
|
|
1,527,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,908,277 |
|
|
|
8,423,152 |
|
|
|
6,126,218 |
|
|
|
17,457,647 |
|
|
|
|
220,680 |
|
|
|
1,043,372 |
|
|
|
1,264,052 |
|
|
|
|
|
F-20
Gran Tierra Energy Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2006 and 2005
Expressed in US dollars, unless otherwise stated
10. Commitments and contingencies
Leases
Gran Tierra holds three categories of operating leases: office, vehicle and housing. The Company
pays $11,846 office lease costs per month, $4,692 vehicle lease costs per month and $1,739 to lease
a house as an employee benefit in Colombia each month.
Future lease payments at December 31, 2006 are as follows:
|
|
|
|
|
Year |
|
Cost |
|
|
2007 |
|
$ |
176,675 |
|
2008 |
|
|
118,550 |
|
2009 |
|
|
87,739 |
|
2010 |
|
|
81,888 |
|
2011 |
|
|
81,888 |
|
|
Total Lease Payments |
|
|
546,740 |
|
|
The company entered into four capital leases in 2006 for office equipment in Calgary, Canada. The
leases expire between 2008 and 2011. As of December 31, 2006 capital assets were valued at $34,405
(net of amortization of $8,620). Total monthly payments for 2007 are approximately $1,140.
Future lease payments under the office equipment leases at December 31, 2006 are as follows: