Gran Tierra Energy Announces Fourth Quarter and 2008 Year-End Financial Results

Company Reports Record Increase in Year over Year Reserves, Production Volumes, and Revenues – Cash Balance Grows to $177 Million


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CALGARY, Alberta,February26, 2009, Gran Tierra Energy Inc. (NYSE Alternext: GTE, TSX: GTE), a company focused on oil exploration and production in South America, today announced financial and operating results for the quarter and year ended December 31, 2008.  Highlights for the year include:
 
Full Year 2008 Financial Highlights:
 
The company recognized revenue and other income of $114.0 million, an increase of 253% from $32.3 million for 2007. Net income for 2008 was $23.5 million or $0.19 per share basic and $0.16 per share diluted, compared to a net loss of $8.5 million or ($0.09) per share in 2007 basic and diluted. The 2008 results reflect increased production from the successful exploration and development programs in both Colombia and Argentina, higher oil prices based on a higher average West Texas Intermediate (WTI) oil price and the results of Solana Resources Limited from the November 14, 2008 acquisition date.   
 
The average price received per barrel of oil in 2008 increased 44% to $84.89 per barrel from $58.79 per barrel in 2007. 
 
Cash provided by operations for 2008 was $109.7 million compared to $8.8 million in 2007.
 
Fourth Quarter 2008 Financial Highlights:
 
Revenue and other income for the fourth quarter ended December 31, 2008 was $19.7 million, a 24% increase from $16.0 million for the same period of 2007. The company reported a net loss for the quarter of $12.7 million or $(0.07) per share diluted as compared to net income of $2.2 million, or $0.02 per share for the same period in 2007.
 
Included in the 2008 fourth quarter results are non-cash expenses resulting from the inclusion of Solana, comprised of a $7.3 million unrealized foreign exchange loss related to translation of a deferred tax liability, and additional depletion expense of $6.9 million.
 
A general strike in Colombia, which caused the suspension of production operations in southern Colombia from November 20, 2008 through to year end, also impacted the results of the quarter. Operating expenses during this period remained relatively unchanged from the third quarter as the company retained its employees and continued to maintain its facilities.  
 
Realized prices in the fourth quarter of 2008 averaged $50.38 per barrel compared to $72.95 per barrel for the fourth quarter of 2007, reflecting the recent decline in WTI price.
 
Balance Sheet Highlights:
 
The company reported cash and equivalents of $176.8 million at 2008 year end as compared to $57.8 million at September 30, 2008 and $18.2 million at December 31, 2007. Working capital was $132.8 million at 2008 year end, as compared to $43.5 million at September 30, 2008 and $8.1 million at the end of 2007. Shareholders’ equity increased to $791.9 million at December 31, 2008 from $76.8 million at December 31, 2007, and the company had no outstanding long-term debt as of year end. The increase in equity is primarily a result of the issuance of shares to acquire Solana. Cash included in the assets acquired from Solana was $81.9 million, net of acquisition costs.
 
Production Highlights:
 
Average oil production for the year ended December 31, 2008, net of royalties, increased 145% to 3,629 BOPD from 1,482 BOPD in 2007. The increase in production is due primarily to increased production from the continued development of the Costayaco field in the Chaza Block in Colombia and the successful drilling of the Proa -1 well in the Surubi Block in Argentina.
 
Average oil production for the fourth quarter of 2008, net after royalties, was4,074 BOPD. Production was impacted by the strike at the Ecopetrol operated Orito facilities which resulted in a suspension of crude oil transportation in southern Colombia from November 20, 2008 through year end 2008. Crude oil transportation resumed on January 12, 2009. 
 
Current production is approximately 12,000 BOPD, net after royalty, and the company anticipates that production will be 15,000 BOPD, net after royalty, at the end of the first quarter of 2009.
 
2008 Reserve Review:
 
Externally audited proved oil reserves (as per SEC Reserves Definitions) net after royalty to Gran Tierra Energy as of December 31, 2008 tripled to 19.2 million barrels of oil (BO) proved compared to 6.4 million BO proved as of December 31, 2007.
 
As per Canadian NI 51-101 and the Reserves definitions in the COGE Handbook, reserves net after royalty to Gran Tierra Energy as of December 31, 2008 increased significantly from 2007 to18.8million BO proved, 8.7 million BO probable, and 18.6 million BO possible. This compares to reserves as of December 31, 2007 of 6.4million BO proved, 5.0 million BO probable and 4.9 million BO possible.
 
Commenting on the results, Dana Coffield, President and Chief Executive Officer of Gran Tierra Energy Inc., stated, “2008 was a milestone year for Gran Tierra Energy. Associated with the acquisition of Solana Resources, the high-point was the consolidation of a 100% working interest in the Costayaco field, one of the largest oil discoveries in Colombia in recent years. With this and with additional drilling success, Gran Tierra Energy was able to triple proved reserves during the year. In parallel, our net after royalty production volumes have increased dramatically and we are on track to reach 20,000 barrels of oil per day, net to the company, in the second half of this year.”
 
Coffield continued, “The fourth quarter of the year proved to be challenging as a result of falling oil prices and a significant deferral of production in Colombia in December. In spite of this, our balance sheet is stronger than it has ever been. Our capital program for 2009 will be fully funded from cash flow and cash on hand. This includes a development drilling program to grow production, an exploration drilling program to continue exploring for new reserves, and diverse seismic programs in Colombia, Peru, and Argentina to prepare for continued exploration drilling in 2010.”
 
“The successful execution of our strategy to date has positioned Gran Tierra Energy to not only survive in the current business environment, but to thrive.  Our 2008 results and strong balance sheet should allow Gran Tierra Energy to continue pursuing its long term goal of becoming a significant player in the international oil and gas exploration and production arena by prudently executing our growth strategy,” Coffield concluded.
 
Related News – Costayaco 6 and 7 Update:
 
The company reported the recent completion of production testing at Costayaco-6 in Colombia. Only water was recovered in this testing. Additional testing will be undertaken to optimize the use of this wellbore for water disposal or for reservoir pressure support. In addition, the drilling of Costayaco-7 has been initiated. This development well is being drilled in the north central portion of the Costayaco field and will take approximately 45 days to drill and complete.
 
Conference Call Information:
 
Gran Tierra Energy Inc. will hold a conference call to review its fourth quarter and full year 2008 results on Thursday, February 26, 2009 at 11:00 a.m. Eastern Time. The call will be hosted by Dana Coffield, President and Chief Executive Officer. Interested parties may access the conference call by dialing (888) 713-4218 (domestic) or (617) 213-4870 (international), pass code # 43836235. The call will also be available via web cast at www.grantierra.com, or http://www.streetevents.com, http://www.fulldisclosure.com. The web cast will be available on Gran Tierra Energy’s website until the next earnings call. 
 
If you are unable to participate, an audio replay of the call will be available beginning two hours after the call and will be available until 11:59 p.m. on February 26, 2009, by dialing (888) 286-8010 (domestic) or (617) 801-6888 (international) using confirmation pass code 72426646.
 
About Gran Tierra Energy Inc.:
Gran Tierra Energy Inc. is an international oil and gas exploration and production company, headquartered in Calgary, Canada, incorporated in the United States, trading on the NYSE Alternext exchange (GTE) and the Toronto Stock Exchange (GTE), and operating in South America. The company holds interests in producing and prospective properties in Argentina, Colombia and Peru. The company has a strategy that focuses on establishing a portfolio of producing properties, plus production enhancement and exploration opportunities to provide a base for future growth. Additional information concerning Gran Tierra Energy is available at www.grantierra.com. Investor inquiries may be directed to info@grantierra.com or (866) 973-4873
 

Cautionary Statement:
 
Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves. The estimate of reserves for individual properties may not reflect the same confidence level as estimates of reserves for all properties, due to the effects of aggregation.
 
Estimates of total net proved oil reserves at December 31, 2008 have been prepared in accordance with the definitions for proved reserves set out in Rule 4-10 of Regulation S-X of the U.S. Securities and Exchange Commission. Reserves were estimated for proved, proved plus probable and proved plus probable plus possible cases under the reserve definitions of National Instrument 51-101 (NI 51-101) of Canada and for the proved case under the definitions of the Securities Exchange Commission (SEC) of the United States.  The evaluation was conducted in accordance with standard industry practice and reserves definitions, procedures and guidance contained in the Canadian Oil and Gas Evaluation Handbook (COGE Handbook).
 
Forward Looking Statements:
 
The statements in this news release regarding Gran Tierra Energy’s belief that the company’s production will be 15,000 BOPD, net after royalty at the end of the first quarter of 2009, that it is on track for achieving 20,000 BOPD this year, that its 2009 capital program will be fully funded from cash flow and cash on hand, that it is positioned to thrive in the current business environment, and its 2009 testing and drilling plans for Costayaco 6 and 7, are forward looking statements or financial outlook (collectively, “forward-looking statements”) under the meaning of applicable securities laws, including Canadian Securities Administrators’ National Instrument 51-102 Continuous Disclosure Obligations and the United States Private Securities Litigation Reform Act of 1995. These statements are subject to risks, uncertainties and other factors that could cause actual results or outcomes to differ materially from those contemplated by the forward-looking statements. There are a number of important factors that could cause the results or outcomes discussed herein to differ materially from that indicated by the forward-looking statements, including, among others: Gran Tierra Energy’s operations are located in South America, and unexpected problems can arise due to guerilla activity, technical difficulties and operational difficulties which impact the production, transport or sale of its products; geographic, political and weather conditions can impact the production, transport or sale of its products; and the risk that the current global economic and credit crisis may impact oil prices and oil consumption more than Gran Tierra Energy currently predicts. Further information on potential factors that could affect Gran Tierra Energy are included in risks detailed from time to time in Gran Tierra Energy's Securities and Exchange Commission filings, including, without limitation, under the caption “Risk Factors” in Gran Tierra Energy's Quarterly Report on Form 10-Q filed November 6, 2008. These filings are available on a Web site maintained by the Securities and Exchange Commission at http://www.sec.gov and on SEDAR at www.sedar.com  Gran Tierra Energy does not undertake an obligation to update forward-looking or other statements in this release.
 
Basis of Presentation of Financial Results:

Gran Tierra Energy’s financial results are reported in United States dollars and prepared in accordance with generally accepted accounting principles in the United States. 
 
Financial Tables to Follow
 

Gran Tierra Energy Inc.
Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit)
For the Years and Quarters ended December 31, 2008, 2007
Prepared in accordance with generally accepted accounting principles in the United States
(Thousands of U.S. Dollars, Except Share and Per Share Amounts)
 
Year Ended December 31,
Quarter Ended December 31,
 
2008
2007
2008
2007
 
 
 
 
REVENUE AND OTHER INCOME
 
 
(Unaudited)
(Unaudited)
Oil and natural gas sales
$
112,805
$
31,853
$
18,932
$
15,925
Interest
 
1,224
 
425
 
795
 
48
 
 
114,029
 
32,278
 
19,727
 
15,973
EXPENSES
 
 
 
 
 
 
 
 
Operating
 
19,218
 
10,474
 
8,452
 
3,755
Depletion, depreciation and accretion
 
             25,737
 
9,415
 
10,516
 
2,865
General and administrative
 
             18,593
 
10,232
 
5,783
 
2,648
Liquidated damages
 
                       -  
 
7,367
 
                       -  
 
                       -  
Derivative financial instruments (gain) loss
 
                 (193)
 
3,040
 
              (3,180)
 
                 2,247
Foreign exchange (gain) loss
 
                6,235
 
(78)
 
7,969
 
15
 
 
69,590
 
40,450
 
29,540
 
11,530
 
 
 
 
 
 
 
 
 
INCOME (LOSS) BEFORE INCOME TAXES
 
44,439
 
(8,172)
 
(9,813)
 
4,443
Income tax expense (recovery)
 
(20,944)
 
(295)
 
2,881
 
2,280
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
$
23,495
$
(8,467)
$
(12,694)
$
2,163
ACCUMULATED DEFICIT, BEGINNING OF PERIOD
 
(16,511)
 
(8,044)
 
19,678
 
(18,674)
RETAINED EARNINGS (ACCUMULATED DEFICIT), END OF PERIOD
$
6,984
$
(16,511)
$
6,984
$
(16,511)
 
 
 
 
 
 
 
 
 
NET INCOME (LOSS) PER SHARE — BASIC
 
0.19
 
(0.09)
 
(0.07)
 
0.02
NET INCOME (LOSS) PER SHARE —DILUTED
 
0.16
 
(0.09)
 
(0.07)
 
0.02
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC
 
123,421,898
 
95,096,311
 
176,768,596
 
95,049,083
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED
 
143,194,590
 
95,096,311
 
185,847,980
 
110,577,835
 
 
 
 
 
Gran Tierra Energy Inc.
Consolidated Balance Sheets
As at December 31, 2008, 2007
Prepared in accordance with generally accepted accounting principles in the United States
(Thousands of U.S. Dollars, Except Share and Per Share Amounts)
As at December 31,
 
2008
2007
 
 
ASSETS
 
 
Current Assets
 
 
Cash and cash equivalents
$
              176,754
$
            18,189
Accounts receivable
 
                   7,905
 
            10,695
Inventory
 
                      999
 
                 787
Taxes receivable
 
                   5,789
 
              1,177
Prepaids
 
                   1,103
 
                 442
Derivative financial instruments
 
                      233
 
                   -  
Deferred tax asset
 
                   2,262
 
                 220
 
 
 
 
 
Total Current Assets
 
              195,045
 
            31,510
 
 
 
 
 
Oil and Gas Properties (using the full cost method of accounting)
 
 
 
 
Proved
 
              380,855
 
            44,292
Unproved
 
              384,195
 
            18,910
 
 
 
 
 
Total Oil and Gas Properties
 
              765,050
 
            63,202
 
 
 
 
 
Other Assets
 
                   2,502
 
                 716
 
 
 
 
 
Total Property, Plant and Equipment
 
              767,552
 
            63,918
 
 
 
 
 
Long Term Assets
 
 
 
 
Deferred tax asset
 
                10,131
 
              1,839
Taxes receivable
 
                          -  
 
                 525
Other long-term assets
 
                   1,315
 
                   -  
Goodwill
 
                98,582
 
            15,005
 
 
 
 
 
Total Long Term Assets
 
              110,028
 
            17,369
 
 
 
 
 
Total Assets
$
           1,072,625
$
          112,797
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current Liabilities
 
 
 
 
Accounts payable
$
                21,134
$
            11,327
Accrued liabilities
 
                12,841
 
              6,139
Derivative financial instruments
 
                          -  
 
              1,594
Current taxes payable
 
                28,163
 
              3,284
Deferred tax liability
 
                      100
 
              1,108
 
 
 
 
 
Total Current Liabilities
 
                62,238
 
            23,452
 
 
 
 
 
Long term liabilities
 
                        40
 
                 132
Deferred tax liability
 
              213,093
 
              9,235
Deferred remittance tax
 
                   1,077
 
              1,332
Derivative financial instruments
 
                          -  
 
              1,055
Asset retirement obligation
 
                   4,251
 
                 799
 
 
 
 
 
Total Long Term Liabilities
 
              218,461
 
            12,553
 
 
 
 
 
Shareholders’ Equity
 
 
 
 
Common shares
 
                      226
 
                   95
(190,248,384 and 80,389,676 common shares and 48,238,269 and 14,787,303 exchangeable shares, par value $0.001 per share, issued and outstanding as at December 31, 2008 and 2007, respectively)
 
 
 
 
Additional paid in capital
 
              753,236
 
           72,458
Warrants
 
                31,480
 
            20,750
Retained earnings (accumulated deficit)
 
                   6,984
 
          (16,511)
 
 
 
 
 
Total Shareholders’ Equity
 
              791,926
 
            76,792
 
 
 
 
 
Total Liabilities and Shareholders’ Equity
$
           1,072,625
$
          112,797
 
 
Gran Tierra Energy Inc.
Consolidated Statements of Cash Flow
For the Years ended December 31, 2008, 2007
Prepared in accordance with generally accepted accounting principles in the United States
(Thousands of U.S. Dollars, Except Share and Per Share Amounts)
 
  Year Ended December 31,
 
2008
2007
 
 
Operating Activities
 
 
Net income (loss)
$
                       23,495
 $
         (8,467)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depletion, depreciation and accretion
 
                       25,737
 
           9,415
Deferred taxes
 
                        (6,418)
 
              185
Stock based compensation
 
                         2,520
 
              810
Liquidated damages
 
                                -  
 
           5,839
Unrealized foreign exchange loss
 
                         6,985
 
                 -  
Unrealized (gain) loss on financial instruments
 
                        (2,882)
 
           2,648
Net changes in non-cash working capital
 
 
 
 
Accounts receivable
 
                       34,943
 
         (5,604)
Inventory
 
                           (107)
 
                25
Prepaids
 
                             261
 
              234
Accounts payable and accrued liabilities
 
                       10,697
 
           2,808
Taxes receivable and payable
 
                       14,840
 
              869
Settlement of asset retirement obligations
 
(334)
 
                 -  
 
Net cash provided by operating activities
 
                     109,737
 
           8,762
 
Investing Activities
 
 
 
 
Restricted cash
 
                                -  
 
           1,010
Oil and gas property expenditures
 
                     (55,217)
 
       (15,976)
Cash acquired on acquisition net of acquisition costs
 
                       81,912
 
                 -  
Long term assets and liabilities
 
                             446
 
            (427)
 
Net cash provided by (used in) investing activities
 
                       27,141
 
       (15,393)
 
Financing Activities
 
 
 
 
Restricted cash
 
                                -  
 
                 -  
Proceeds from issuance of common stock
 
                       21,687
 
              719
 
Net cash provided by financing activities
 
                       21,687
 
              719
 
Net (decrease) increase in cash and cash equivalents
 
                     158,565
 
         (5,912)
Cash and cash equivalents, beginning of year
 
                       18,189
 
         24,101
 
Cash and cash equivalents, end of year
$
                     176,754
 $ 
         18,189
 
 
 
 
 
Cash
 
110,688
 
18,189
Term deposits
 
66,066
 
                 -  
Cash and cash equivalents, end of year
$
                     176,754
 $ 
         18,189
 
 
 
 
 
Supplemental cash flow disclosures:
 
 
 
 
Cash paid for interest
$
                                -  
 $
                80
Cash paid for taxes
$
                       11,587
 $
              116
Non-cash investing activities:
 
 
 
 
Non-cash working capital related to capital additions
$
                       11,096
 $
           8,259