GTE
- Gran Tierra Energy and Solana Resources Sign Agreement to Combine to Create
a
Premier International Oil and Gas Exploration and Production Company Conference
Call
Event
Date/Time: Jul. 29. 2008 / 11:00AM ET
CORPORATE
PARTICIPANTS
Dana
Coffield
Gran
Tierra Energy - President, CEO
Al
Palombo
Cameron
Associates Investor Relations - IR Contact
Scott
Price
Solana
- President, CEO
CONFERENCE
CALL PARTICIPANTS
Neal
Dingmann
Dahlman
Rose - Analyst
Jamie
Somerville
Genuity
Capital Markets - Analyst
William
Lee
CIBC
World Markets - Analyst
David
Dudlick
Thomas
Weisel Partners - Analyst
Marc
Walsh
Morgan
Stanley - Analyst
Brian
Kooney
[Kensboard]
Capital - Analyst
Frederick
Kozak
Canaccord
Adams - Analyst
Andrew
Miller
SMH
Capital - Analyst
Bruce
Brewster
Brewster
Asset Management - Analyst
Rafi
Corey
Raymond
James & Assoc. - Analyst
Ian
McLean
Macquarie
Securities - Analyst
Lazarus
Vlad
CIBC
World Markets - Analyst
Eric
Cloephus
Sanders
Morris Harris - Analyst
P
R E S E N T A T I O N
Operator
Good
day,
ladies and gentlemen, and welcome to the Gran Tierra and Solana Resources
business combination conference call. My name is [Chenique] and I will be
your
coordinator for today.
At
this
time, all participants are in listen-only mode. We will conduct a
question-and-answer session towards the end of this conference. (Operator
Instructions)
I
would
now like to turn the presentation over to Dana Coffield, President and Chief
Executive Officer. Please proceed.
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Thank
you, Chenique. Good morning, everyone, and welcome to this joint conference
call
with Gran Tierra Energy and Solana Resources.
We
issued
a joint press release after the close of market outlining the details of
the
definitive agreement to provide a business combination of Gran Tierra Energy
and
Solana. We are eager to bring you the highlights of this transaction.
This
investor call is being broadcast over this conference line and is available
via
the Web as noted in our press release. It will also be available after the
call
in a recorded format through the conference service and on each of our Web
sites.
With
the
on the line today is Scott Price, the President and CEO of Solana Resources,
as
well as Martin Eden, our Chief Financial Officer, and Ricardo Montes, Solana's
Chief Financial Officer.
Before
we
begin, I would like to ask Al Palombo of our Investor Relations firm, Cameron
Associates, to read our disclaimer regarding forward-looking statements.
Al
Palombo
-
Cameron Associates Investor Relations - IR Contact
Thanks,
Dana.
Certain
comments made during this conference call, particularly those anticipating
the
benefits of the transaction, future financial performance, business prospects,
and overall operating strategies constitute forward-looking statements within
the meaning of the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements may be identified by words such as
anticipate, believe, estimate, expect, intend, predict, hope or similar
expressions. Such statements are based on management's current expectations
and
are subject to a number of factors and uncertainties which could cause actual
results to differ materially from those described in the forward-looking
statements.
Listeners
are urged not to place undue reliance on these forward-looking statements,
which
speak only as of the date of this call. Gran Tierra Energy and Solana Resources
assume no obligation to update these forward-looking statements in order
to
reflect any event or circumstance that may arise after the date of this call,
other than as may be required by applicable law or regulation.
Listeners
are urged to carefully review and consider the risks disclosed in the press
release disclosing the transaction, which is available on Gran Tierra Energy's
Web site at www.GranTierra.com, in Item 1-A of Part 2 of Gran Tierra's quarterly
report on its most recent Form 10-Q filed with the Securities and Exchange
Commission on May 12, 2008 and available at www.SEC.gov, which attempt to
advise
interested parties of the risks and factors that may affect Gran Tierra's
business, financial condition, results of operation and cash flows, as well
as
Solana's annual information form filed on SEDAR on April 10, 2008 which
highlights similar risk factors that may affect results. If one or more of
these
risks or uncertainties materialize or if the underlying assumptions prove
incorrect, actual results may vary materially from those expected or projected.
In
addition, Gran Tierra will be filing a joint proxy statement/management
information circular regarding the proposed transaction. We encourage you
to
read it when it becomes available, because it will have important information
about the transaction.
Finally,
this call is the property of Gran Tierra Energy Inc., and any copying or
rebroadcasting of this call is expressly forbidden without the written consent
of Gran Tierra Energy, Inc.
With
that
said, I will now turn the call over to Dana.
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Thank
you, Al.
Today
is
an exciting day for both Gran Tierra Energy and Solana Resources as we announce
an agreement to bring together our two organizations, a combination that
we
believe will greatly accelerate our growth. We expect the completion of this
transaction to increase our efficiencies as we continue to delineate and
develop
one of the most important oil discoveries in Colombia in recent years, the
Costayaco field, which our combined companies will have 100% ownership interest
upon successful closing and a 95% economic interest, excluding government
royalties. In addition to jointly continuing to explore our vast pooled
land-base, this combination provides us with increased operating scale,
significant revenue-producing assets, and a considerably stronger balance
sheet
that will allow us to continue executing our work programs on our existing
land
and increase our capability to undertake much larger and material new venture
initiatives in the future.
The
numbers are impressive. Based on yesterday's closing share price, the combined
company will have a pro forma enterprise value of $1.35 billion and a market
cap
on a fully diluted basis of $1.5 billion based on the July 28, 2008 Gran
Tierra
closing share price. The combined entity will have a working interest in
26
blocks of land in three countries. Gran Tierra Energy will operate 25 of
these
blocks. The gross acreage will encompass 7.1 million acres. The net working
interest share will encompass 6.2 million acres.
A
rapidly
growing production base resulting from the exploration success of the two
independent companies we expect will result in a 2008 exit rate of approximately
15,000 barrels of oil per day, net after royalties. This is a production
profile
that we expect will continue growing through 2009 as new infrastructure is
built
to accommodate production growth in the Costayaco field in Colombia.
The
expected cash flow from this production will more than cover our projected
capital programs in 2008 and 2009. In addition, the combined entity will
be
debt-free.
The
foundation of the combined company will be the reserves and production jointly
held today in the Putumayo Basin, specifically in the Costayaco Field in
the
Chaza block that I just mentioned. We just completed independent reserve
evaluation of the field conducted by GLJ for Gran Tierra Energy based on
3-D
seismic and delineation and development drilling results from four wells,
Costayaco 1 through Costayaco 4, not including test results at Costayaco
4, as
these results are not available yet indicates the field to date has gross
proved
reserves of 20.5 million barrels of oil.
It
should
be noted that the field has additional growth potential as the oil/water
contact
has not yet been identified in one of the major reservoirs with the existing
well data. These reserves and associated production are complemented by
independently held reserves in production held by the two companies today
in the
Putumayo Basin and the Llanos Basin in Colombia, and the Noroeste Basin of
Argentina.
For
the
future, there is a [vast] land base in the combined company containing an
impressive portfolio of exploration drilling opportunities that will be tested
by an active exploration/drilling campaign that is currently ongoing by both
companies and is expected to continue in the coming years. Together, our
portfolio of potential drilling opportunities in South America has a broad
diversity in risk, scale and reward, allowing the Company to more effectively
manage its exploration risk capital.
This
portfolio of exploration opportunities encompasses six basins, from the
Putumayo, Llanos, Magdalena and Catatumbo basins in Colombia to the Maranon
Basin of Peru and the Noroeste Basin of Argentina. As a combined company,
we
believe our capacity to invest in our future and achieve our full potential
is
greatly enhanced, which will enable us to deliver greater value to our
shareholders.
Upon
completion of the transaction, Solana will become a wholly owned subsidiary
of
Gran Tierra. The combined entity will operate under the Gran Tierra Energy
name.
It will be led by a combined management team and a board comprised of seven
members, including the five current directors of Gran Tierra Energy and two
representatives from Solana Resources. The company's head office will continue
to be the current Gran Tierra head office in Calgary, and I will continue
in my
current position as President and Chief Executive Officer of the combined
entity. Scott Price, the President and Chief Executive Officer of Solana
Resources, will join the Board of Directors of the combined company.
I'm
going
to hand over the call to Scott now, who will review the overall terms of
the
deal with you.
Scott
Price
-
Solana - President, CEO
Thanks,
Dana, and good morning to everyone.
I
share
Dana's enthusiasm for today's announcement. Our common (technical difficulty)
Costayaco (technical difficulty) complementary property and opportunity
portfolio, and proven ability to work together made the combination of Gran
Tierra and Solana an excellent strategic fit. With our broad -- excuse me,
our
combined resources, we will have a more robust platform and be an organization
with much broader horizons and greater abilities.
Let
me
briefly review the general terms of the transaction. Under the terms of the
agreement, each Solana shareholder will receive 0.9527918 of a common share
of
Gran Tierra, or 0.9527918 of an exchangeable share convertible into Gran
Tierra
shares for each common share of Solana. The exchangeable shares convert
one-for-one into Gran Tierra common shares. This represents a premium of
approximately 14.1% on the 20-day weighted average trading price to July
28,
2008 of the Solana shares on the TSX Venture Exchange.
In
Canada, the transaction will be accomplished on a tax-deferred basis. However,
it may be a taxable transaction for non-Canadian holders of Solana securities.
Upon
the
closing of the transaction, Solana security holders will own approximately
49%
and Gran Tierra security holders will own approximately 51% of the combined
company on a fully diluted basis.
The
transaction is subject to regulatory and shareholder approvals. We expect
to
hold shareholder meetings in October with a joint proxy statement expected
to be
mailed to shareholders of both companies in September.
Upon
completion, it is anticipated that the combined company will continue to
list
its securities on the American Stock Exchange and the Toronto Stock Exchange
under the symbol GTE with fully diluted shares outstanding of approximately
268.3 million. We expect that the increased liquidity broader shareholder
base
and financial flexibility that this transaction brings will allow the Company
to
accelerate and expand on its potential.
I
will
now turn the call back to Dana, who will provide an overview of the combined
asset base and general operations.
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Thanks,
Scott.
By
combining our companies, the scale of our reserves, production and land
increases dramatically with minimum impact to our existing staff, organization
and operation. The latter points are important. Because of our overlapping
interest in our major common asset and the common operating environment in
Colombia in general, there is expected to be tremendous synergy in combining
the
operating experience and skills of our staff while minimizing the redundancy
of
two teams working on a common asset.
Going
forward, we expect that anticipated production and cash flow growth from
Colombia will fund continued expiration on the combined land petition. We
expect
that the transaction will create a stronger company in a consolidating global
industry while preserving Gran Tierra's operating leadership. Being an effective
operator has been key to the success of the two companies to date, and we
believe it will continue to be the key to our future success.
So
as you
can see, this is a very exciting opportunity for both of our companies and
all
of our stakeholders. Together, production growth will continue to be our
focus
for the balance of 2008 for the combined companies while in parallel continuing
to undertake exploration to grow our oil reserve base.
Both
of
our organizations have been successful with their strategies over last years.
We
believe that, together, we can provide our combined shareholder base with
even
greater potential value in a combined company as we grow into the future.
Now,
that's the end of our prepared statements, so we'd like now to open the call
to
questions. Operator, can we please have your assistance?
QUESTIONS
AND ANSWERS
Operator
(Operator
Instructions). Neal Dingmann, Dahlman Rose.
Neal
Dingmann
-
Dahlman Rose - Analyst
Congratulations.
(inaudible) the first question, on the pro forma proven reserve number, does
that entail now with the midyear update as well or will that change a bit?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
The
pro
forma included an update on the proved reserves, includes the update on the
Costayaco Field, not for all of the assets of the two companies.
Neal
Dingmann
-
Dahlman Rose - Analyst
Okay,
so
I was just looking. The pro forma proven reserve shows 18.4. I'm just wondering.
That does not include the midyear update?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
It
does
include the midyear update.
Neal
Dingmann
-
Dahlman Rose - Analyst
Okay,
it
does, okay. I'm wondering now. With the combination of the new company, will
the
plans change in Costayaco as far as how aggressive you will be? That's my
first
question, I guess, around those assets, both this year and for next year.
Then
secondly, as far as your expectations for this Costayaco 5 that you are
drilling, any color you can shed on that as far as when that might [TD] and
kind
of expectations behind that well?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Sure.
I
would say the plans are not going to change on Costayaco as a result of the
merger. Both companies are going to develop this field as quickly and as
efficiently as possible. I think we will be able to develop the field more
efficiently. Rather than having two teams working it through joint venture
processes, we will have one team working it, so the working environment will
be
much more efficient than having two companies working on it. So it's going
to
make the development much easier, the workflow much more efficient. We will
have
a stronger team, a broader, stronger team working on it. So in that regard,
it
will be a real boost to the development of the field.
Neal
Dingmann
-
Dahlman Rose - Analyst
It
looks
like -- will you keep most of that management team then, I mean the ops team,
Dana, on the Solana side? It looked like that Scott, Glenn, Don, will most
of
those guys go away but the ops guys stay? Is that correct?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
That's
correct. I think they've got a tremendous team down there, a lot of experience
throughout the country. Most of their experience, operationally, though,
will be
in the Llanos Basin and Catatumbo Basin, where their operations are, so we
will
be retaining their staff to continue those operations, plus complementing
our
staff in the Putumayo with the relevant skills and experience that we need
as we
continue to build our team in Colombia.
Neal
Dingmann
-
Dahlman Rose - Analyst
Then
what
about -- has anything changed with Peru? Obviously the acreage now looks
quite
big. Will those plans still be towards the latter part of next year before
you
really get after that?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Yes.
What
we've done in Peru is we've completed the Aeromagnetic and gravity survey,
we've
moved into the second exploration period on both blocks. We've initiated
an
environmental impact assessment for both blocks, which is required prior
to
acquiring seismic. That process is very long and involved -- and could take
up
to a year and a half before we can actually begin physically acquiring seismic.
So, our intention is still to begin seismic acquisition towards the end of
next
year.
Neal
Dingmann
-
Dahlman Rose - Analyst
Okay.
Then one question maybe even for Scott -- I know the latter part of this
year,
they had some plans for that [Acurra] play of theirs that to me looked pretty
positive. Will anything change there? Will, you now, still the combined company,
get after that play, or any color on that play?
Scott
Price
-
Solana - President, CEO
Could
you
repeat the name of the play again, Neal?
Neal
Dingmann
-
Dahlman Rose - Analyst
The
(multiple speakers) O-C-A-R-R
Scott
Price
-
Solana - President, CEO
Oh,
[Ocarro], that's our channel play in the Llanos Basin. The ability to get
after
that this sort of fall and the end of the year was predicated on ability
to
construct leases and roads during the wet season. We tried to do that, or
have
actually done that on our other block for the Las (inaudible) location. Based
on
that experience, we are probably not going to be drilling much or doing much
civil works during the wet season, so that will move [Ocarro] out into January
of '09, which is the dry season in the Llanos Basin. But that program will
continue. It's part of a minimum work commitment underneath the blocks that
are
held there. So the joint company will continue to pursue that, obviously.
Dana
Coffield
-
Gran Tierra Energy - President, CEO
As
a
general comment, in general, we will be continuing obviously with the
(inaudible) commitments and plans that Solana has for their properties.
Neal
Dingmann
-
Dahlman Rose - Analyst
Okay.
Then the last question -- it just looked like, I guess maybe for Scott, I'm
just
wondering if the shareholders, if everybody agreed. To me, it looked like
I
guess the price agreed on the 20-day average, it was about $4.83, which is
about
18% or 15% to 18% lower than the high seen in mid-June. I'm just wondering
sort
of how you came about or how you agreed to the premium that was paid.
Scott
Price
-
Solana - President, CEO
Well,
you
know, the market cap under the price of the stock was one element of the
negotiations. Really, what it boiled down to was the combination of the two
asset bases and looking at the underpinning value of those. Then based on
that,
it was how the company was going to be brought together on a comparison of
the
asset values coming together. Here, I think what we've struck is a very,
very
good balance. As you can see, both companies were dominated by one core asset,
which was Costayaco where we have relatively equal footing in it, so finding
a
valuation where we end up with a 49/51 split on the shares, at the end of
the
day, I think it's very equitable and a real win for all the shareholders
or all
the stakeholders in both companies.
Neal
Dingmann
-
Dahlman Rose - Analyst
Good,
guys. I look forward to all of the activity.
Operator
Jamie
Somerville, Genuity Capital Markets.
Jamie
Somerville
-
Genuity Capital Markets - Analyst
Good
morning, everybody, and I think congratulations. It looks like a good deal,
for
the long term anyway.
Starting
with -- following up from some of Neal's questions here, on the operations
side,
are we correct to assume that you are going to be operating the two companies
now as of today on the assumption that the deal is going to conclude?
Specifically, what does that mean, if anything? I'm thinking in particular
about
the rig that Solana has in the Llanos Basin at this point in time. Will it
potentially be drilling on shared assets?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Well,
at
this point in time, we have to continue operating as two independent companies
until the transaction closes. But obviously, we are going to be working very
closely with each other, as we have, just to ensure this development moves
forward as efficiently as possible. So, we are still two independent companies.
Jamie
Somerville
-
Genuity Capital Markets - Analyst
Okay.
Then can I ask the question, again following up on valuation, can Dana or
Scott
or both of you indicate, when you worked up the exchange ratio, what percentage
of the value that you saw in the other company, that you saw in the shared
assets? Is that a question you can answer?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
I
can't
give you a specific answer, but the exchange ratio was based on the relative
net
asset values of the two companies, but both of that being reserves and both
of
that being Costayaco. So really Costayaco was the driver of the relative
valuations. That each company had independent reserves -- Solana had independent
reserves in the Llanos Basin; Gran Tierra had some independent reserves in
the
Putumayo basin plus Argentina. Then the third complement is, kind of the
smallest complement, is the speculative value of the exploration lands.
Jamie
Somerville
-
Genuity Capital Markets - Analyst
Okay,
perfect. On those reserves, the new reserves for Costayaco, the 3 P reserves
include the possibility that the oil/water contact may turn out to be lower
in
the [Vieta T] formation, depending on the outcome of Costayaco 5. Is that
correct?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
No.
The
reserve work was based on call it the lowest known oil in the wells that
were
drilled up to the date of the report say, July 1. so, it actually assumes
no
reserves in the Costayaco 5 well. Obviously, the data wasn't there.
Jamie
Somerville
-
Genuity Capital Markets - Analyst
Perfect.
So that includes not even in the possibles?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Correct.
Jamie
Somerville
-
Genuity Capital Markets - Analyst
Perfect.
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Then
there was one more (inaudible) to make but I forgot what it was. Oh yes,
it does
not include test information, as I said in my speaking notes with Costayaco
4,
because it hasn't happened yet.
Jamie
Somerville
-
Genuity Capital Markets - Analyst
Okay.
For
Scott, are you going to be putting out a separate reserves update for Solana
on
Costayaco or anything else for a midyear update?
Scott
Price
-
Solana - President, CEO
I
think,
given where we are with this transaction, that we probably won't be doing
that.
In fact, I will confirm that we won't be doing that. The only obligation
we have
to do a midyear update was with respect to our credit facility in terms of
expanding the line or the accessibility underneath the line we have. We don't
see that as a priority right now. There is no need for that facility at this
juncture, so the answer is no.
Jamie
Somerville
-
Genuity Capital Markets - Analyst
Perfect.
Thank you very much. That's it for me.
Operator
William
Lee, CIBC World Markets.
William
Lee
-
CIBC World Markets - Analyst
Congratulations,
guys. I just have a couple of quick questions.
The
first
question is, the reserves, the Costayaco reserves, what percentage of that
does
that represent for each company in terms of your corporate reserves? Can
you
guys give a sense? Is it 90% or --?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
It's
a
vast majority for both companies.
Scott
Price
-
Solana - President, CEO
It
was
about 90% for us. It was about -- just about 89%, 90% for us. So it was
predominant was in the (inaudible) spectrum.
William
Lee
-
CIBC World Markets - Analyst
So
that
Solana piece -- and how about Gran Tierra?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
It
would
be a little bit smaller piece because we have the reserves in Argentina but
similar order of magnitude.
William
Lee
-
CIBC World Markets - Analyst
Okay.
Then the next question is how much of Solana's production does Gran Tierra
operate currently?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Well,
I
can answer that. The bulk of production currently comes out of the Putumayo
Basin. We are in the process of putting on a discovery in the Llanos that
will
increase our X joint operatorship production, but really the production bulk
of
that production comes out of the Costayaco Field.
William
Lee
-
CIBC World Markets - Analyst
Okay.
Then I guess, on the Solana side, I think you guys had plans to drill upwards
of
eight exploration wells this year. Now, has that changed at all, given this
transaction? I think three have been drilled to date. What does the balance
of
the year look like?
Scott
Price
-
Solana - President, CEO
Well,
we've actually, you know, some of the wells that we've drilled in Costayaco
fell
under that figure (inaudible) wells. The only change in our program as it
was
existing is we had originally anticipated at the beginning of the year of
getting two exploration wells done in the Catatumbo Basin. Based on a variety
of
issues there, those wells have been deferred now until the early part of
'09, so
those ones won't be a part of the program. Otherwise, the program proceeds
as
originally laid out.
Operator
David
[Dudlick], Thomas Weisel Partners.
David
Dudlick
-
Thomas Weisel Partners - Analyst
Good
morning and congratulations to all of you. Some of my questions have been
answered. If I could refer to the exit production of the combined entity,
you've
got a 15,000 BOE per day net of royalties. Can I ask if that includes the
option
that you are exploring of exporting via truck to the north, via the -- I
think
it was the [Nava] field? Is that implicit in your assumption for year end?
Scott
Price
-
Solana - President, CEO
Yes,
that
is implicit in the assumption, yes.
David
Dudlick
-
Thomas Weisel Partners - Analyst
Okay,.
Therefore, I can conclude that it is more than plausible, more than an option,
you are actually someway down the road of actually -- excuse the pun -- of
actually getting that trucking route up and running?
Scott
Price
-
Solana - President, CEO
Yes.
David
Dudlick
-
Thomas Weisel Partners - Analyst
We
can
infer from the [easy] that there is a net cash on a fully diluted basis,
including the exercise of [ARMs] and options, about $150 million. Can you
perhaps -- and this may be a question for Martin and Ricardo. What is the
actual
net cash position, gross, net of such exercise, as we stand?
Unidentified
Company Representative
Of
the
combined companies?
David
Dudlick
-
Thomas Weisel Partners - Analyst
Yes,
on a
pro forma basis, with the net cash position (multiple speakers)?
Unidentified
Company Representative
It's
probably on the order of about $100 million right now, slightly under that,
about $90 million probably.
David
Dudlick
-
Thomas Weisel Partners - Analyst
Okay.
On
a pro forma basis again, as Neal asked in the first questions, he was referring
to the proven reserves on a pro forma basis. Have I missed it? But I was
looking
for perhaps a pro forma P-2 reserve base for the combined entity. Is that
lurking out there in the two press releases?
Unidentified
Company Representative
It's
not
in the joint press release. We are only allowed to report the SEC proved
reserves. It can be calculated or deduced from the midyear reserve update
for
Costayaco, and then you would have to --.
David
Dudlick
-
Thomas Weisel Partners - Analyst
But
you
work out the delta on the Costayaco?
Unidentified
Company Representative
Right.
David
Dudlick
-
Thomas Weisel Partners - Analyst
--
on a P
2 basis and then bring it in, okay.
Unidentified
Company Representative
Neither
company has updated our other property reserves with midyear.
David
Dudlick
-
Thomas Weisel Partners - Analyst
Okay.
Unidentified
Company Representative
You
have
to do some balancing with the year-end reserve reports from last
year.
David
Dudlick
-
Thomas Weisel Partners - Analyst
If
I may,
I would just like to circle back to -- and you've addressed this a number
of
different ways. Essentially, what I heard was that there were no planned
changes
to the Solana exploration programs ahead of -- or at least to both companies'
programs, rather, ahead of shareholder approval. I guess what I've also heard
from Scott is that actually there are some fairly substantial changes inasmuch
as -- am I correct that we are not going to expect any more drilling in the
Llanos Basin this year? I also heard that we're not going to get any more
drilling in the Catatumbo Basin this year.
Scott
Price
-
Solana - President, CEO
That
is
incorrect, David. We are actually looking at spudding the loss (inaudible)
well
and that will spud in the next, hopefully in the next week, depending on
the
weather conditions. So that would conclude our Llanos drilling program. Don't
forget that I talked about the reason we have deferred the [Ocarro] location
until the dry season, but the Catatumbo has been delayed, as previously
mentioned. So that really would complete our program, as previously outlined,
David.
David
Dudlick
-
Thomas Weisel Partners - Analyst
Okay,.
Aside from the intuitive operating efficiencies of one combined team moving
ahead with the development of the Costayaco area, Dana, I just want to confirm
you are expecting -- there are no material changes to the program this year,
this side of shareholder approval, with regards to the development side of
this
portfolio?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
That's
correct. No, any changes are just operationally since we are full-steam ahead,
irrespective of the transaction.
David
Dudlick
-
Thomas Weisel Partners - Analyst
Okay,
that's all I've got for the moment. Thank you both.
Operator
Marc
Walsh, Morgan Stanley.
Marc
Walsh
-
Morgan Stanley - Analyst
Yes,
I
appreciate the update on the earnings and everything. Could you also speak
to
how many barrels a day you guys are going to be up to with the combined
companies, and also what your breakeven value per barrel of oil is going
to be?
Then are you guys doing -- have anything in the plans for -- the number two
question -- on the stock buyback program, are you all going to initiate a
stock
buyback program?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
I
will
tell you what, the last question, no, we are not initiating a stock buyback
program. As we said, the combined entity, we expect to have a production
exit,
2008 exit production rate of about 15,000 barrels a day after royalties.
I
forgot what your first two questions were.
Marc
Walsh
-
Morgan Stanley - Analyst
As
far as
cash flow, where your annual projected free cash flow with both operations
is
actually the primary question I've got. Then secondly, are there going to
be
some cost savings related to collapsing the two companies into one entity?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
We
really
haven't provided any guidance on cash flow for the balance of the year of
the
combined companies.
In
terms
of operating -- or savings, cash savings in the combined company, I don't
think
there will be significant cash savings. The bulk of the savings will be an
operating efficiencies in the merger of the two companies.
Marc
Walsh
-
Morgan Stanley - Analyst
Okay.
Then final question -- it appears like obviously the market has not received
this too well today, realizing that oil is down considerably. But what about
the
perceived dilution of shares? I guess that's really actually what this is
going
to do is dilute the existing shareholders to a certain extent. What are you
guys
telling investors that own significant shares of Gran Tierra
already?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Well,
we
are essentially doubling the share count of the Company, but we are also
doubling the reserves of the Company, so it's essentially neutral in that
regard.
Marc
Walsh
-
Morgan Stanley - Analyst
Oh,
so
you are saying it is not necessarily diluting the current investors
then?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Correct,
so there's essentially no dilution in that regard. On the flip side though,
there's increased operating efficiency, there's increased scope for growing
the
Company with this larger reserve base, production growth, cash flow growth
that's going to allow the Company to materially accelerate its growth going
into
the future.
The
reality is there's no dilution. We have twice as many shares, but we have
twice
as many reserves. But we are a much more powerful company financially and
operationally.
Marc
Walsh
-
Morgan Stanley - Analyst
Okay,
okay. Then my final question -- breakeven, what's your breakeven price of
crude
on all your entities, combined?
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Well,
there is no -- that's impossible to answer because we have so many different
contracts in different [fiscal] environments between Argentina and the different
contracts in --.
Marc
Walsh
-
Morgan Stanley - Analyst
But
would
it be safe to say obviously you guys are still profitable. I would assume
a $120
oil, $100 oil kind of deal.
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Absolutely,
yes.
Marc
Walsh
-
Morgan Stanley - Analyst
Okay,
thank you.
Operator
[Brian
Kooney], [Kensboard] Capital.
Brian
Kooney
-
[Kensboard] Capital - Analyst
I'm
sorry, I didn't have a question. I was just joining the conference
call.
Dana
Coffield
-
Gran Tierra Energy - President, CEO
Welcome.