GRAN TIERRA ENERGY INC.
Fitch Ratings has affirmed
The Rating Outlook is Stable. In addition, Fitch has affirmed the 2027
GTE's ratings and Outlook reflect the company's adequate capital structure and low-cost operating profile, constrained by small scale of operations and limited geographic diversification. Fitch forecasts the company's gross production will grow at a CAGR of 11% over the next three years, reaching an average of 45,000boed by YE2026, while maintaining PDP and 1P reserve life at 4.0 years and 7.0 years, respectively. Fitch estimates GTE's debt/1P should be at or below
Key Rating Drivers
Small Concentrated Production Profile: GTE's ratings are constrained by its production size, projected to increase to an average of 45,000boed by YE2026, in line with Fitch's positive sensitivity trigger. The company has a concentrated production profile where the Midas block accounts for nearly 50% of total current production. GTE's PDP and 1P reserve life is stable and close to 4.0 years and 7.0 years, respectively, in 2024.
Growth Strategy: Fitch expects total production to reach 45,000boed by YE2025, at a CAGR of 11% from YE2023 production. Growth will come mainly from the Cohembi field as GTE continues its development drilling plan while expanding its oil recovery program through waterflooding and the polymer injection. Growth will also be supported by the expected increase in production in
Low-Cost Production Profile: GTE is well positioned compared with peers with half-cycle cost of production of
Adequate Capital Structure: Fitch projects that GTE's gross leverage will be 1.5x in 2024, assuming an EBITDA of
Derivation Summary
GTE's credit and business profiles are comparable with other small independent oil producers in
Fitch expects GTE's production will average 45,000boed by YE2026 and its PDP reserve life will be 4.0 years with a 1P reserve life 7.0 years. This compares well with SierraCol's PDP reserve life of 4.5 years and 1P reserve life of 7.0 years in 2024.
GTE's half-cycle production was
GTE, SierraCol and
Key Assumptions
Fitch's Key Assumptions Within the Rating Case for the Issuer
Fitch's price deck of
Average daily gross production of 33,000boed in 2024, and an average of 40,000boed between 2025-2027;
Average
Royalties of
Operating expenses at
Transportation cost of
SG&A cost of
Capex of
No dividends over the rating horizon, share repurchases close to
1P Reserve Replacement of 106%.
Recovery Analysis
The recovery analysis assumes that GTE would be a going concern (GC) in bankruptcy and that it would be reorganized rather than liquidated.
GC Approach:
A 10% administrative claim.
The GC EBITDA is estimated at
EV multiple of 4.0x.
With these assumptions, Fitch's waterfall generated recovery computation (WGRC) for the senior secured notes is in the 'RR1' band and the senior unsecured notes are in the 'RR2' band. However, according to Fitch's Country-Specific Treatment of Recovery Ratings Criteria, the Recovery Rating for corporate issuers in
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Net production maintained at 45,000boed or more, while maintaining a 1P reserve life of seven years or greater;
Maintenance of a conservative financial profile with gross leverage of 2.5x or below and total debt/1P reserves of
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Sustainable production size declines to below 30,000boed;
1P reserve life declines to below seven years on a sustained basis;
A significant deterioration of credit metrics to total debt/EBITDA of 3.5x or more;
A persistently weak oil and gas pricing environment that impairs the longer-term value of its reserve base;
Sustained deterioration in liquidity and operating profile, particularly in conjunction with more aggressive dividend distributions than previously anticipated.
Liquidity and Debt Structure
Adequate Liquidity: GTE reported
Issuer Profile
Gran Tierra is an independent energy company with an average oil production of approximately 32,000boed onshore in
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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