Executive Summary / Key Takeaways

• Gran Tierra Energy is strategically transforming into a diversified energy producer with core assets in Colombia, Ecuador, and Canada, highlighted by the recent acquisition of i3 Energy (ITE), which significantly boosted reserves and production potential.


• The company's operational and technical expertise, particularly in waterflood optimization and efficient drilling techniques, is a key differentiator driving cost efficiencies and production growth across its portfolio.


• Recent financial performance in Q1 2025 reflects the integration of Canadian assets, showing increased sales volumes and production, though impacted by lower Brent prices and higher operating/transportation costs associated with the expanded footprint.


• Management is focused on execution in 2025 and beyond, targeting production growth (47,000-53,000 BOEPD guidance), significant debt reduction ($600M gross debt by 2026, $500M by 2027), and returning capital via share buybacks, viewing the stock as trading at a significant discount to its net asset value.


• While facing risks from commodity price volatility and geopolitical factors, GTE's diversified asset base and operational focus position it to capitalize on growth opportunities and enhance shareholder value.

A New Chapter: Diversification and Operational Excellence

Gran Tierra Energy Inc. is charting a new course, evolving from a primarily South American focused explorer and producer into a more diversified energy company with a significant footprint in Canada. This strategic pivot, underscored by the transformative acquisition of i3 Energy Plc on October 31, 2024, is reshaping the company's risk profile, growth trajectory, and operational landscape. With core assets now spanning Colombia, Ecuador, and the Western Canadian Sedimentary Basin, Gran Tierra is positioning itself to unlock value through a combination of proven operational expertise, targeted exploration, and disciplined capital management.

The company's history in South America, particularly its established presence and operational capabilities in Colombia and its successful exploration track record in Ecuador since entering in 2019, provides a strong foundation. This experience is complemented by the newly acquired Canadian assets, which bring exposure to prolific plays like the Montney and Clearwater and a significant inventory of drilling locations. This geographic and commodity diversification (now including natural gas) is a strategic response to the inherent volatility of the energy markets and regional operating environments.

Gran Tierra's competitive standing within this landscape sees it operating alongside larger state-owned entities like Ecopetrol (EC) in Colombia, as well as other independent players such as GeoPark (GPRK), Frontera Energy (FEC), and globally diversified companies like Occidental Petroleum (OXY). While GTE's market share in its primary South American markets is smaller compared to EC's dominance, its strength lies in its agility and operational execution, particularly in exploration and optimizing existing fields. Compared to peers like GPRK and FEC, GTE aims to differentiate through its diversified portfolio and specific technical advantages. Against larger players like OXY, GTE focuses on leveraging its regional expertise and efficient project execution in its core areas.

A key differentiator for Gran Tierra is its operational and technical expertise. This isn't a single piece of proprietary hardware, but rather a demonstrated capability in applying advanced techniques and optimizing processes in the field. In Colombia, this is evident in the ongoing waterflood optimization at the mature Acordionero field, which includes facility enhancements, ESP upsizing, and injector conversions aimed at reducing unit costs and improving recovery factors. Management reported a strong response to these efforts, with production increasing 5% from Q1 2025 levels to approximately 14,500 BOPD currently. Furthermore, the company has shown the ability to execute drilling programs efficiently. In Q1 2025, drilling at the Cohembi North Pad in Colombia was completed 60% faster than the previous operator's program, and wells were delivered under budget. In Ecuador, the Iguana B1 well was drilled and completed in record time and under budget, setting a new pace for the company's exploration campaign there. The use of 3D seismic data in Ecuador is also enhancing prospectivity assessment and development planning. In Canada, early production from the Simonette Lower Montney wells is exceeding budget type curves and surpasses a prior offset well by 80% for the same period, demonstrating effective application of optimized completion designs. These technical capabilities translate into tangible benefits: lower operating costs per barrel (despite the increase from new Canadian operations), faster cycle times from discovery to production, and improved recovery rates, all contributing to better capital efficiency and ultimately enhancing the value of the asset base. The strategic intent behind ongoing initiatives like the Acordionero water treatment facility expansion (adding 35% capacity) and the Marten Hills waterflood pilot in Canada is to further improve operational performance and maximize resource recovery.

Performance Reflecting Transformation

Gran Tierra's financial performance in the first quarter of 2025 provides the first full look at the impact of integrating the Canadian operations alongside its South American assets. Total Oil, natural gas, and NGL sales increased by 8% to $170.5 million compared to Q1 2024, and by 16% from the prior quarter (Q4 2024). This growth was primarily driven by a significant increase in sales volumes, which rose 50% year-over-year to 39,024 BOEPD, reflecting the addition of the Canadian production and successful drilling in Ecuador. However, this volume increase was partially offset by an 8% decrease in the average Brent oil price compared to Q1 2024.

Operating expenses saw a notable increase, rising 39% year-over-year to $67.4 million, and 11% sequentially, primarily due to the inclusion of the new Canadian operations and ramp-up activities in Ecuador. Similarly, transportation expenses jumped 51% year-over-year and 62% sequentially, driven by higher sales volumes and increased transportation activity in both Canada and Ecuador. On a per BOE basis, operating expenses decreased slightly year-over-year ($19.18 vs $20.42), but increased compared to the prior quarter ($19.18 vs $20.03), influenced by the change in production mix and costs associated with the new Canadian assets. Quality and transportation discounts also increased significantly to $26.43 per boe in Q1 2025, up from $15.36 in Q1 2024, primarily due to the addition of Canadian production, approximately 50% of which is tied to AECO gas pricing.

The net result was a decrease in operating netback to $96.3 million in Q1 2025, down from $104.5 million in Q1 2024, although it increased from $82.2 million in the prior quarter.

The company reported a net loss of $19.3 million for Q1 2025, compared to a minimal net loss in Q1 2024 and a larger net loss in Q4 2024. Funds flow from operations also decreased by 26% year-over-year to $55.3 million, primarily impacted by lower Brent prices, higher operating and interest expenses, and increased current income tax expense, partially offset by higher sales volumes and lower quality/transportation discounts compared to the prior year.

Capital expenditures were significantly higher in Q1 2025, totaling $94.7 million compared to $55.3 million in Q1 2024, reflecting the front-loaded nature of the 2025 program and the inclusion of the Canadian development program and active Ecuador exploration. The capital was allocated across Colombia ($41.1M), Ecuador ($24.3M), and Canada ($29.3M).

From a liquidity perspective, Gran Tierra ended Q1 2025 with $76.6 million in cash and cash equivalents, down from $103.4 million at the end of 2024. Total debt stood at $726.3 million, a decrease from $746.9 million at year-end 2024, primarily due to the repayment of the remaining 6.25% Senior Notes ($24.8 million principal) that matured in February 2025. Net debt was $683 million. The company maintains access to capital through its amended Canadian revolving credit facility (undrawn as of March 31, 2025, with $34.8 million available commitment) and a new US$75 million reserve-based lending facility in Colombia secured subsequent to the quarter end. Management believes its current liquidity and projected cash flow are sufficient to meet its planned capital program and strategic objectives for the next 12 months.

Outlook and Strategic Execution

Looking ahead, Gran Tierra's strategy for 2025 and beyond is firmly focused on execution, production growth, and strengthening the balance sheet. The company has provided 2025 production guidance of 47,000 to 53,000 BOEPD, representing a significant increase from 2024 levels, driven by planned development drilling in Colombia (Suroriente, Costayaco), appraisal and development activities in Ecuador following recent exploration successes, and development drilling in Canada.

The capital program is designed to support this growth while fulfilling commitments. Approximately 25% of the total 2025 capital budget is allocated to exploration, primarily in Ecuador to complete the remaining exploration commitments. Once fulfilled, the focus in Ecuador will shift towards developing the numerous discoveries made since 2019, with management targeting regional development over the next 2-3 years to reach plateau production. In Canada, the near-term focus is on developing oil-weighted opportunities, with the expectation that the Canadian segment will be essentially cash flow neutral in 2025 regarding capital expenditures versus cash flow.

Debt reduction remains a critical financial target. Gran Tierra is targeting gross debt of $600 million by the end of 2026 and $500 million by the end of 2027, aiming for a long-term net debt to Adjusted EBITDA ratio of less than one times. Management is confident in its ability to fund upcoming debt maturities, including the 2026 bond amortization, through a combination of cash on hand and free cash flow generation.

Shareholder returns are also a key component of the strategy. The company views its shares as trading at a significant discount to its net asset value (citing 1P NAV around $20/share and 2P NAV around $40/share based on management commentary) and continues to utilize its share repurchase program. From January 1, 2023, to April 29, 2025, Gran Tierra repurchased approximately 5.2 million shares, representing 15% of shares outstanding at the start of 2025, funded by free cash flow. Management intends to allocate 50% of additional free cash flow (above debt reduction goals) towards further share repurchases.

The outlook is underpinned by assumptions regarding commodity prices. While acknowledging potential short-term volatility in natural gas prices, particularly in Canada, management expresses a bullish long-term view on gas prices, expecting them to increase in 2026 and beyond. Oil prices remain the primary variable influencing the pace of operations and production levels.

Risks and Considerations

Despite the positive outlook and strategic transformation, Gran Tierra faces inherent risks common to the oil and gas industry and specific to its operating regions. Commodity price volatility is a primary market risk, influenced by global supply and demand dynamics, geopolitical events (including ongoing conflicts in Ukraine and the Gaza region), and actions by organizations like OPEC. Fluctuations in Brent, WTI, and AECO prices, as well as regional differentials, can significantly impact revenue and cash flow.

Operational risks in South America include potential disruptions from local blockades, protests, or security issues, as well as technical difficulties, equipment performance issues, and transportation constraints (though recent barging issues on the Magdalena River have been resolved). The successful integration of the acquired i3 Energy assets and operations is crucial to realizing anticipated benefits and synergies; failure to do so could impact financial and operational performance.

Foreign exchange risk exists due to operations in Colombia and Canada, although revenue is primarily denominated in U.S. dollars or linked to U.S. dollar benchmarks, which provides some mitigation. Interest rate risk is present on floating-rate debt, though the Canadian credit facility was undrawn in Q1 2025.

The company's ability to access debt or equity capital markets for future financing, acquisitions, or refinancing is subject to market conditions. Maintaining compliance with financial covenants in its debt agreements is also critical. Furthermore, the success of exploration drilling is not guaranteed, and the failure of exploratory wells to result in commercial production could impact reserve replacement and future growth.

Management believes the resolution of pending legal proceedings would not have a material adverse effect on the company's financial position or results. However, the unpredictable nature of global events and economic conditions makes it challenging to identify all potential risks and their ultimate impact.

Conclusion

Gran Tierra Energy is at a pivotal point in its evolution. The strategic acquisition of Canadian assets has fundamentally altered its scale, reserve base, and geographic diversification, positioning it as a more resilient and growth-oriented energy producer. The company's demonstrated operational and technical expertise in optimizing existing production and executing efficient drilling programs provides a solid foundation for its ambitious 2025 production guidance and long-term development plans.

While the first quarter of 2025 results reflect the initial integration challenges and the impact of commodity price fluctuations, the underlying operational momentum and strategic focus on execution are clear. Management's commitment to significant debt reduction and returning capital to shareholders through buybacks signals confidence in future free cash flow generation and addresses key investor concerns regarding the balance sheet and perceived undervaluation.

Investing in Gran Tierra involves exposure to the inherent volatility of the energy sector and specific regional risks. However, the company's diversified asset base, proven operational capabilities, substantial reserve potential, and clear strategic priorities for growth and financial discipline present a compelling narrative for investors seeking exposure to a transforming energy producer focused on unlocking value across multiple basins. The success of its ongoing drilling programs, particularly in Ecuador and Canada, and its progress towards debt reduction targets will be critical indicators to monitor as Gran Tierra continues to execute its strategy in this new chapter.