Filed
Pursuant to Rule 424(b)(3)
File No. 333-140171
64,409,425
shares of common stock
This
prospectus relates to the offering by the selling stockholders of Gran Tierra
Energy Inc. of up to 64,409,425 shares of our common stock, par value
$0.001 per share. These shares of common stock consist of 42,846,323 shares
of common stock issued to, and 21,563,102 shares of common stock underlying
warrants issued to, the selling stockholders in a private offering. We are
registering the offer and sale of the common stock, including common stock
underlying warrants, to satisfy registration rights we have granted to the
selling stockholders.
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 may sell the shares of common stock from time to time
in
the open market, on any stock exhange upon which our common stock is listed,
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 American Stock Exchange under the symbol “GTE”,
and on the Toronto Stock Exchange under the symbol “GTE”. On April 14, 2008, the
closing price of the common stock was $3.89 per share (US dollars) on the
American Stock Exchange and $3.94 per share (Canadian dollars) on the
Toronto Stock Exchange.
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 April 15, 2008
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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Page
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Summary
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Risk
Factors
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4 | |
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Special
Note Regarding Forward-Looking Statements
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13 | |
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Dividend
Policy
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14 | |
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Use
Of Proceeds
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14 | |
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Price
Range Of Common Stock
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14 | |
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Selected
Financial Data
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15 | |
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Management’s
Discussion And Analysis Of Financial Condition And Results Of
Operations
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16 | |
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Business
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34 | |
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Management
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49 | |
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Principal
And Selling Stockholders
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60 | |
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Certain
Relationships And Related Transactions
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77 | |
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Description
Of Capital Stock
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79 | |
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Plan
Of Distribution
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82 | |
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Legal
Matters
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84 | |
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Experts
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84 | |
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Where
You Can Find Additional Information
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84 | |
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Index
to Financial Statements
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F-1
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1
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 Canada’s 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 Canada’s 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 Canada’s 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 world’s 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 2006, we acquired
oil and gas producing and non-producing assets in Colombia and other minor
interests in Argentina and Peru.
In
Colombia in 2007, we drilled two discovery wells in the Putumayo Basin, the
Juanambu-1 well in the Guayuyaco Block and the Costayaco-1 well in the Chaza
Block. We also acquired 70 square kilometers of 3D seismic on the Chaza block,
and commenced drilling the Costayaco-2 well, which we completed drilling in
January 2008. We drilled four other wells, which were plugged and abandoned.
These wells were drilled with partners through various farm-out
arrangements,
and
three
of the wells were drilled at
no
cost to us. We were granted 100% interests in two Technical Evaluation Areas
in
Colombia in the Putumayo basin - Putumayo West A and Putumayo West B. Finally,
we engaged in farm-out activity on several of our exploration blocks, including
Mecaya, Rio Magdalena and Talora, and relinquished our interest in the Primavera
block.
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 - 10
th
Avenue
S.W., Calgary, Alberta T2R 0B2, 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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99,988,644 shares
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Common
stock offered by the selling stockholders (2)
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64,409,425
shares
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Common
stock outstanding after the offering (3)
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121,551,746 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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American
Stock Exchange Symbol
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GTE
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Toronto
Stock Exchange Symbol
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GTE
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(1)
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Amount
is as of April 1, 2008 and includes 11,827,776 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
21,563,102 shares of common stock underlying warrants issued to
the
selling stockholders as of April 1, 2008.
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(3)
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Assumes
the full exercise of warrants to purchase an aggregate of 21,563,102
shares of common stock held by the selling stockholders as of April
1,
2008.
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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
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.
As
an oil
and gas exploration and development company, which commenced operations in
2005,
we have a limited operating history, and therefore it is difficult for potential
investors to evaluate our business. Our operations are subject to all of the
risks frequently encountered in the development of any new business, including
control of expenses and other difficulties, complications and delays, 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 and operations in new
countries. We may never overcome these obstacles. Our accumulated deficit as
of
December 31, 2007 is $16.5 million.
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. If we are unable to do so, or unable to do so at the level we
intend, then we may never attain profitability.
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 early 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, and 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 eight properties
in
Argentina, nine 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 into other countries. 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.
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 Tierra Energy’s ability to grow.
To
develop our business, we will endeavor to use the business relationships of
our
management and board of directors 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.
4
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 and existing credit
facility will be sufficient only to provide a limited amount of working capital,
and the revenues generated from our properties in Argentina and Colombia will
be
sufficient only to fund our currently planned operations. We will require
additional capital to continue to operate our business beyond our current
planned 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.
When
we
require such 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, 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.
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 cash flow 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 These
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 these joint ventures, which could substantially
affect the implementation of our business strategy. In the future we will be
required to make periodic cash calls in connection with our operated and
non-operated joint ventures, or we may be required to place 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 may not be able to:
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·
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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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·
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identify
and hire qualified employees or retain valued employees;
or
|
5
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·
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incorporate
effectively the components of any business that we may acquire in
our
effort to achieve growth.
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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 Energy. 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 President of Gran Tierra Argentina
SA, and Edgar Dyes, our President of Gran Tierra Colombia Ltd. (“Gran Tierra
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 Energy 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.
Risks
Related to our Prior Business May Adversely Affect our
Business.
Before
the share exchange transaction between Goldstrike and Gran Tierra Canada,
Goldstrike’s 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 Goldstrike’s 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 Goldstrike’s 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 management’s 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.
Maintaining
and improving our financial controls may strain our resources and divert
management’s 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, management’s attention may be
diverted from other business concerns, which could have a material adverse
effect on our business, financial condition and results of
operations.
We
Must Maintain Effective Registration Statements for all of Our Private
Placements of our Common Stock
We
are
required to file Post Effective Amendments to our registration statements
periodically in accordance with the Registration Rights Agreements for our
2005
and 2006 private placements of units. We cannot control the length of time
it
will take for the Post Effective Amendment to our registration statements to
become effective, and delays past the effective dates of our current
registration statements could cause us to incur penalties for failing to keep
the registration statements effective. In addition, keeping these registration
statements effective is costly and diverts management’s attention from running
our business.
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 exploration expenditures 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.
6
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 may
not
be capable of production levels we project or in sufficient quantities to be
commercially viable. On a long-term basis, our company’s 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 may not be able to do 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.
Unless
We are Able to Replace Reserves Which We Have Produced, Our Cash Flows and
Production will Decrease Over Time.
Our
future success depends on our ability to find, develop and acquire additional
oil and gas reserves that are economically recoverable. Without successful
exploration, development or acquisition activities, our reserves and production
will decline. We may not be able to find, develop or acquire additional reserves
at acceptable costs.
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.
If
Oil and Natural Gas Prices Decrease, We May be Required to Take Write-Downs
of
the Carrying Value of Our Oil and Natural Gas
Properties.
We
follow
the full cost method of accounting for our oil and gas properties. A separate
cost center is maintained for expenditures applicable to each country in which
we conduct exploration and/or production activities. Under this method, the
net
book value of properties on a country-by-country basis, less related deferred
income taxes, may not exceed a calculated “ceiling”. The ceiling is the
estimated after tax future net revenues from proved oil and gas properties,
discounted at 10% per year. In calculating discounted future net revenues,
oil
and natural gas prices in effect at the time of the calculation are held
constant, except for changes which are fixed and determinable by existing
contracts. The net book value is compared to the ceiling on a quarterly basis.
The excess, if any, of the net book value above the ceiling is required to
be
written off as an expense. Under SEC full cost accounting rules, any write-off
recorded may not be reversed even if higher oil and natural gas prices increase
the ceiling applicable to future periods. Future price decreases could result
in
reductions in the carrying value of such assets and an equivalent charge to
earnings.
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.
7
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 non-operated joint ventures. When we
participate in decisions as a joint venture partner, we must rely on the
operator’s 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 non-operated joint ventures, our results of operations for those ventures
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 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 2007, we sold all
of
our production in Argentina to Refiner S.A. The lack of competition in this
market could result in unfavorable sales terms which, in turn, could adversely
affect our financial results.
Currently all operators in Argentina are operating without sales contracts.
We
cannot provide any certainty as to when the situation will be resolved or what
the final outcome will be.
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.
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, particularly
during the months November through February when the area is subject to periods
of heavy rain and flooding. While storage facilities are designed to accommodate
ordinary disruptions without curtailing production, delayed sales will delay
revenues and may adversely impact our working capital position in Argentina.
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.
8
The
majority of our oil in Colombia is delivered by a single pipeline to Ecopetrol
and sales of oil could be disrupted by damage to this pipeline. Oil from our
new
discoveries at Costayaco-1 and Juanumbu-1 is trucked a short distance to the
entry point of our pipeline, and adverse weather conditions and security issues
can cause delays in trucking. Once delivered to Ecopetrol, 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 Energy.
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 WTI in 2000 was $30 per barrel. In 2006, it was $66 per barrel and in 2007
it was $72
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 oil and gas 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.
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.
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.
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
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 1980’s and early 1990’s. In late-2001 there was
a deep fiscal crisis in Argentina involving restrictions on banking
transactions, imposition of exchange controls, suspension of payment of
Argentina’s 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.
The
crude
oil and natural gas industry in Argentina is subject to extensive regulation
including land tenure, exploration, development, production, refining,
transportation, and marketing, imposed by legislation enacted by various levels
of government and with respect to pricing and taxation of crude oil and natural
gas by agreements among the
federal and provincial governments, all of which are subject to change and
could
have a material impact on our business in Argentina. The Federal Government
of
Argentina has implemented controls for domestic fuel prices and has placed
a tax
on crude oil and natural gas exports.
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.
9
Our
agreements with Refiner S.A.expired on January 1, 2008, and renegotiation,
though currently underway, has been delayed due to the introduction of a new
withholding tax regime for crude oil and refined oil products exported and
sold
domestically in Argentina. Currently all oil and gas producers in
Argentina are operating without sales contracts. The new withholding
tax regime was introduced without specific guidance as to its application.
Producers and refiners of oil in Argentina have been unable to determine an
agreed sales price for oil deliveries to refineries. Also, the price for
refiners’ gasoline production has been capped below the price that would be
received for crude oil. Therefore, the refineries’ price offered to oil
producers reflects their price received, less taxes and operating costs and
their usual mark up. In our case we are receiving $33 per barrel for
production since November 18, 2007, the effective date of the decree. The
price we received for November oil deliveries before November 18, 2007 was
approximately $48 per barrel. Along with most other oil producers in
Argentina, we are continuing deliveries to the refinery and will continue to
receive $33 per barrel until the situation around the decree is rectified by
the
government. The Provincial Governments have also been hurt by these
changes as their effective royalty take has been reduced by the lower sales
price. We are working with other oil and gas producers in the area, as well
as
Refiner S.A., and provincial governments, to lobby the federal government for
change .There has been a delay in rectifying the situation in Argentina because
of a change in government in December 2007, and the months of January and
February are generally slow working months due to summer vacations.
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 current
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 government’s 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 Colombian
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 two
regions of Colombia - in the Middle Magdalena and Putumayo regions. The Putumayo
region has been prone to guerilla activity in the past. In 1989, Argosy’s
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. In addition, in March
2008, two of the Ecopetrol pipelines were damaged by guerillas, and we
estimate at present that we will have to reduce our current production and
deliveries to Ecopetrol during a portion of April, while Ecopetrol
completes repairs to their pipelines.
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.
10
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 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, changes
in
tax rates 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, including the imposition of additional
taxes. 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 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.
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11
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 may not be able to obtain, sustain or renew such licenses.
Regulations and policies relating to these licenses and permits may 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 company’s functional
currency. Since we began operating in Argentina (September 2005), the rate
of exchange between the Argentine peso and US dollar has varied between 2.89
pesos to one US dollar to 3.23 pesos to the US dollar, a fluctuation of
approximately 11%. Exchange rates between the Colombian peso and US dollar
have
varied between 2,303 pesos to one US dollar to 2,014 pesos to one US dollar
since September 1, 2005, a negative fluctuation of approximately 13%. 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. The Central Bank may
require prior authorization and may or may not grant such authorization for
our
Argentine subsidiaries to make dividend payments to us and there may 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.
12
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;
and
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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;
|
|
·
|
announcements
by relevant governments pertaining to incentives for alternative
energy
development programs;
|
|
·
|
fluctuations
in interest rates, exchange rates and the availability of capital
in the
capital markets; and
|
|
·
|
significant
sales of our common stock, including sales by 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 operations 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 ability to produce the 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.
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.
13
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 operations 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 $25,327,420.65 if 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,
if
any, will be used for general corporate purposes and capital expenditures.
We
have agreed to 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 traded from that time until April 8, 2008, under the
symbol “GTRE.OB.” On April 8, 2008, our common stock was listed on the American
Stock Exchange ("AMEX") and is trading under the symbol "GTE". On February
19,
2008, our common stock was listed on the Toronto Stock Exchange (“TSX”) and is
trading under the symbol “GTE”.
As
of
April 1, 2008, there were approximately 293 holders of record of shares of
our common stock (including holders of exchangeable shares).
On April
14, 2008, the last reported sales price of our shares on the AMEX was $3.89.
For
the periods indicated, the following table sets forth the high and low bid
prices per share of common stock on the OTC Bulletin Board until April 8, 2008.
These prices represent inter-dealer quotations without retail markup, markdown,
or commission and may not necessarily represent actual transactions. For the
period beginning April 8, 2008, these prices represent high and low sale prices
on the AMEX.
|
|
High
|
Low
|
|||||
| Second Quarter (through April 14, 2008) |
$
|
4.30 |
$
|
3.29 | |||
|
First Quarter
2008
|
$
|
4.26
|
$
|
2.31
|
|||
|
Fourth
Quarter 2007
|
$
|
2.69
|
$
|
1.39
|
|||
|
Third
Quarter 2007
|
$
|
2.16
|
$
|
1.31
|
|||
|
Second
Quarter 2007
|
$
|
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
|
|||
As
of
April 1, 2008, there were 99,988,644
shares
of
common stock issued and outstanding, which number includes 11,827,776 shares
of
common stock issuable upon exchange of the exchangeable shares of Goldstrike
Exchange Co. issued to former holders of common stock of Gran
Tierra Energy Inc., a privately held corporation in Alberta (“Gran Tierra
Canada”).
Equity
Compensation Plan
Securities
authorized for issuance under equity compensation plans as of December 31,
2007 are as follows:
|
Plan
category
|
Number
of
securities
to be issued upon
exercise
of options
|
Weighted
average
exercise price of
outstanding
options
|
Number
of securities
remaining
available for future
issuance
|
|||||||
|
Equity
compensation plans approved by security holders
|
5,724,168
|
$
|
1.52
|
3,275,832
|
||||||
|
Equity
compensation plans not approved by security holders
|
—
|
—
|
—
|
|||||||
|
Total
|
5,724,168
|
3,725,832
|
||||||||
14
The
only equity compensation plan approved by our stockholders is our 2007 Equity
Incentive Plan, which is an amendment and restatement of our 2005 Equity
Incentive Plan, under which our board of directors is authorized to issue
options or other rights to acquire up to 9,000,000 shares of our common
stock.
SELECTED
FINANCIAL DATA
The
following selected summary consolidated financial data should be read in
conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and audited financial statements 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 U.S. dollars.
|
Period
Ended December 31,
|
||||||||||
|
2007
|
2006
|
2005
|
||||||||
|
Statement
of Operations Data
|
||||||||||
|
Revenues
and other income
|
||||||||||
|
Oil
sales
|
$
|
31,807,641
|
$
|
11,645,553
|
$
|
946,098
|
||||
|
Natural
gas sales
|
44,971
|
75,488
|
113,199
|
|||||||
|
Interest
|
425,542
|
351,872
|
—
|
|||||||
|
Total
revenues
|
32,278,154
|
12,072,913
|
1,059,297
|
|||||||
|
Expenses
|
||||||||||
|
Operating
|
10,474,368
|
4,233,470
|
395,287
|
|||||||
|
Depletion,
depreciation and accretion
|
9,414,907
|
4,088,437
|
462,119
|
|||||||
|
General
and administrative
|
10,231,952
|
6,998,804
|
2,482,070
|
|||||||
|
Liquidated
damages
|
7,366,949
|
1,527,988
|
—
|
|||||||
|
Derivative
financial instruments
|
3,039,690
|
—
|
—
|
|||||||
|
Foreign
exchange (gain) loss
|
(77,275
|
)
|
370,538
|
(31,271
|
)
|
|||||
|
Total
expenses
|
40,450,591
|
17,219,237
|
3,308,205
|
|||||||
|
Loss
before income tax
|
(8,172,437
|
)
|
(5,146,324
|
)
|
(2,248,908
|
)
|
||||
|
Income
tax
|
(294,767
|
)
|
(677,380
|
)
|
29,228
|
|||||
|
Net
loss
|
$
|
(8,467,204
|
)
|
$
|
(5,823,704
|
)
|
$
|
(2,219,680
|
)
|
|
|
Net
loss per common share — basic and diluted
|
$
|
(0.09
|
)
|
$
|
(0.08
|
)
|
$
|
(0.16
|
)
|
|
|
Statement
of Cash Flows Data
|
||||||||||
|
Operating
activities
|
$
|
6,214,677
|
$
|
(829,620
|
)
|
$
|
(1,876,638
|
)
|
||
|
Investing
activities
|
(12,845,943
|
)
|
(45,366,912
|
)
|
(9,108,022
|
)
|
||||
|
Financing
activities
|
719,303
|
68,075,856
|
13,206,116
|
|||||||
|
(Decrease)
Increase in cash
|
$
|
(5,911,963
|
)
|
$
|
21,879,324
|
$
|
2,221,456
|
|||
|
Balance
Sheet Data
|
||||||||||
|
Cash
and cash equivalents
|
$
|
18,188,817
|
$
|
24,100,780
|
$
|
2,221,456
|
||||
|
Working
capital (including cash)
|
8,058,049
|
14,541,498
|
2,764,643
|
|||||||
|
Oil
and gas properties
|
63,202,432
|
56,093,284
|
7,886,914
|
|||||||
|
Deferred
tax asset
|
2,058,436
|
444,324
|
—
|
|||||||
|
Total
assets
|
112,796,561
|
105,536,957
|
12,371,131
|
|||||||
|
Deferred
tax liability
|
(11,674,744
|
)
|
(9,875,657
|
)
|
—
|
|||||
|
Other
long-term liabilities
|
(1,986,023
|
)
|
(633,683
|
)
|
(67,732
|
)
|
||||
|
Shareholders’
equity
|
$
|
(76,791,855
|
)
|
$
|
(76,194,779
|
)
|
$
|
(11,039,347
|
)
|
|
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.
15
MANAGEMENT’S
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.
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 Alberta corporation, which we refer to as Gran Tierra
Canada, was acquired by an indirect subsidiary of Goldstrike Inc, a Nevada
corporation. Goldstrike adopted the assets, management, business operations,
business plan and name of Gran Tierra Canada. For accounting purposes, the
predecessor company in the transaction was the former Gran Tierra Canada, and
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.
We
funded
acquisitions of our properties in Colombia and Argentina 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, described below.
Our
operating results for the year ended December 31, 2007 as compared to 2006
are
principally impacted by the inclusion in 2007 of a full year’s activities from
the oil and gas interests in Argentina and Colombia we acquired in the second
and fourth quarters of 2006. The 2007 results are also impacted by the 2007
discoveries in the Costayaco area of the Chaza block and the Juanambu area
of
the Guayuyaco block and the subsequent commencement of production of the first
wells in each of these areas in the second half of 2007 and a higher average
WTI
for 2007. Our production volumes and revenues in Colombia have significantly
increased over the prior year.
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, 2006 and
two months after production was reinstated on November 1, 2006, six months
of activities at El Vinalar beginning July 1, 2006 and one month of
activities at Chivil, commencing December 1, 2006. 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). 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 year ended December 31, 2007:
|
· an
additional 50% WI in Nacatimbay;
|
|
· an
additional 50% WI in Ipaguazu;
|
|
· 50%
WI in El Vinalar (oil production);
|
|
· 100%
WI in Chivil (oil production);
|
|
· 100%
WI in Surubi (exploration land);
|
|
· 100%
WI in Santa Victoria (exploration land); and,
|
|
· 93.2%
WI in Valle Morado (exploration
land).
|
The
operating results for 2006 were also impacted by our acquisition of Argosy
Energy International L.P. (“Argosy”). Prior to June 20, 2006 we did not own any
oil or gas properties in Colombia. On June 20, 2006 we acquired Argosy and
became the operator of nine blocks in Colombia. The Santana, Guayuyaco and
Chaza
blocks are currently producing. The Rio Magdalena, Talora, Azar and Mecaya
blocks are in their exploration phases. During 2007, we relinquished ownership
of the Primavera block and acquired the Putumayo A and B technical evaluation
areas.
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.
Due
to a
successful exploration program in Colombia, undertaken in the first half of
2007, we made two field discoveries, Costayaco in the Chaza block and Juanambu
in the Guayuyaco block. These exploration wells were brought into production
in
the third quarter of 2007 and have significantly increased our daily production.
Average daily production in Colombia in 2007, including our new discovery wells
Costayaco-1 and Juanambu-1, increased by 559 barrels per day to 913 barrels
per
day from 354 barrels per day in 2006.
16
Our
estimate of proved reserves, net of royalties, as of December 31, 2007, stands
at 6.4 million barrels of oil primarily due to the new discoveries at Costayaco
and Juanambu. This compares to our December 31, 2006 proved reserves of
3.0 million barrels of oil.
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, with an initial borrowing base of
$7 million based on mid-2006 reserves. We have not drawn down any amounts
under this facility.
In
June,
2006, we sold an aggregate of 50 million units of our securities at a price
of
$1.50 per unit in a private offering for gross proceeds of $75 million, pursuant
to four separate Securities Purchase Agreements, which we refer to collectively
as the “2006 Offering”. Each unit comprised one share of Gran Tierra Energy’s
common stock and one warrant to purchase one-half of a share of Gran Tierra
Energy’s common stock at an exercise price of $1.75 for a period of five years.
In connection with the issuance of these securities, Gran Tierra Energy entered
into four separate Registration Rights Agreements with the investors pursuant
to
which Gran Tierra Energy agreed to register for resale the shares and warrants
(and shares issuable pursuant to the warrants) issued to the investors in the
offering by November 17, 2006, and if we failed to do so we would be obligated
to pay liquidated damages. The second registration statement was declared
effective by the Securities Exchange Commission (“SEC”) on May 14, 2007. Gran
Tierra Energy had accrued $8.6 million in liquidated damages as of that
date.
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
Gran Tierra Energy’s 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 the warrants to $1.05 and extending the life
of
the warrants by one year, in lieu of a cash payment for liquidated damages.
$7.4
million of the liquidated damages has been recorded in 2007 and the remainder
had been recorded in 2006.
Gran
Tierra Energy has an active development drilling and exploration drilling
program budgeted for 2008. This includes seven development wells in oil
discoveries made in Colombia in 2007 including Costayaco-2 which commenced
drilling in December 2007, and completed testing in February 2008; Costayaco-3
which was drilled in January and February 2008 and is planned for testing in
March, 2008; and three oil exploration wells, two in Colombia and one in
Argentina. Our exploration success in 2007 is to be further developed in 2008
with the potential to significantly increase our production. Gran Tierra Energy
plans to continue with development drilling through 2008 to increase our
production capacity, in addition to undertaking additional oil exploration
efforts to further define the potential of our acreage in Colombia, Argentina
and Peru.
Currently
all oil and gas producers in Argentina are operating without sales
contracts. A new withholding tax regime was introduced in Argentina
without specific guidance as to its application. Producers and refiners of
oil
in Argentina have been unable to determine an agreed sales price for oil
deliveries to refineries. We are receiving $33 per barrel, which is a price
offered by Refiner S.A., the purchaser of our crude oil, based on their netback,
for production since November 18, 2007, the effective date of the decree.
The price we received for November oil deliveries before November 18, 2007
was
approximately $48 per barrel. Along with most other oil producers in
Argentina, we are continuing deliveries to the refinery and will continue to
receive $33 per barrel until the situation around the decree is rectified by
the
government. The Provincial Governments have also been hurt by these
changes as their effective royalty take has been reduced by the lower sales
price. We are working with other oil and gas producers in the area, as well
as
Refiner S.A. and provincial governments, to lobby the federal government for
change. There has been a delay in rectifying the situation in Argentina because
of a change in government in December 2007, and the months of January and
February are generally slow working months due to summer vacations.
Operating
in countries in South America exposes our business to risks due to political
and
economic forces in the countries in which we operate. For example, in March
2008, two of the Ecopetrol pipelines were damaged by guerillas, and we
estimate at present that we will have to reduce our current production
deliveries to Ecopetrol during a portion of April, while Ecopetrol completes
repairs to their pipeline, which will impact our revenues for the first quarter
of 2008. See Item 1A. “Risk Factors” for the risks we face as a result of
operating in South America.
17
Results
of Operations for the years ended December 31, 2007 as compared to year
ended December 31, 2006
Revenue
and Other Income
A
summary
of selected production, revenue and price information for the years ended
December 31, 2007 and 2006 is presented in the following
table:
|
|
Year
Ended December 31,
|
|
|
|
||||||||||||||||||||||||
|
|
2007
|
2006
|
Change
from Prior Year
|
|||||||||||||||||||||||||
|
|
Argentina
|
Colombia
|
Total
|
Argentina
|
Colombia
|
Total
|
Argentina
|
Colombia
|
Total
|
|||||||||||||||||||
|
Production,
net of royalties (2)
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Oil
and NGLs (Bbls)
|
207,912
|
333,157
|
541,069
|
127,712
|
129,209
|
256,921
|
63
|
%
|
158
|
%
|
111
|
%
|
||||||||||||||||
|
Gas
(Mcf)
|
26,631
|
-
|
26,631
|
41,447
|
-
|
41,447
|
-36
|
%
|
-
|
-36
|
%
|
|||||||||||||||||
|
Oil,
Gas and NGLs (Boe) (1)
|
209,244
|
333,157
|
542,401
|
129,784
|
129,209
|
258,993
|
61
|
%
|
158
|
%
|
109
|
%
|
||||||||||||||||
|
Revenue
and other income
|
||||||||||||||||||||||||||||
|
Oil
and NGLs (Bbls)
|
$
|
8,059,486
|
$
|
23,748,155
|
$
|
31,807,641
|
$
|
5,033,363
|
$
|
6,612,190
|
$
|
11,645,553
|
60
|
%
|
259
|
%
|
173
|
%
|
||||||||||
|
Gas
|
44,971
|
-
|
44,971
|
75,488
|
-
|
75,488
|
-40
|
%
|
-
|
-40
|
%
|
|||||||||||||||||
|
Interest
(excluding Corporate)
|
15,225
|
222,785
|
238,010
|
-
|
-
|
-
|
100
|
%
|
100
|
%
|
100
|
%
|
||||||||||||||||
|
|
$
|
8,119,682
|
$
|
23,970,940
|
$
|
32,090,622
|
$
|
5,108,851
|
$
|
6,612,190
|
$
|
11,721,041
|
59
|
%
|
263
|
%
|
174
|
%
|
||||||||||
|
Other
- Corporate
|
|
|
187,532
|
|
|
351,872
|
|
|
-47
|
%
|
||||||||||||||||||
|
|
|
|
$
|
32,278,154
|
|
|
$
|
12,072,913
|
|
|
167
|
%
|
||||||||||||||||
|
Average
Prices
|
||||||||||||||||||||||||||||
|
Oil
and NGLs (Per Bbl)
|
$
|
38.76
|
$
|
71.28
|
$
|
58.79
|
$
|
39.41
|
$
|
51.17
|
$
|
45.33
|
-2
|
%
|
39
|
%
|
30
|
%
|
||||||||||
|
Gas
(Per Mcf)
|
$
|
1.69
|
-
|
$
|
1.69
|
$
|
1.82
|
-
|
$
|
1.82
|
-7
|
%
|
-
|
-7
|
%
|
|||||||||||||
(1)
Gas
volumes are converted to barrels (“Bbl’s”) of oil equivalent ("Boe") at the rate
of 20 thousand cubic feet ("Mcf") of gas per barrel of oil based upon the
approximate relative values of natural gas and oil. Natural Gas Liquids (NGLs")
volumes are converted to Boe’s on a one-to-one basis with oil.
(2)
Production represents production volumes adjusted for inventory
changes.
Crude
oil
and NGL production for the year ended December 31, 2007 increased 111% to
541,069 barrels from 256,921 barrels for the year ended December 31, 2006.
The
average price received per barrel of oil increased 30% to $58.79 per barrel
for
2007 from $45.33 per barrel in 2006. As a result, revenues and other income
for
the year ended December 31, 2007 increased 167% to $32,278,154 compared to
$12,072,913 for the year ended December 31, 2006. The increase in
production is due primarily to the inclusion of a full year of Colombian and
Argentine production and the commencement of production at the beginning of
the
third quarter from the two new discovery wells. The 2006 production included
Colombian production subsequent to its acquisition 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,
2006. Natural gas production in 2007 decreased 36% to 26,631 Mcf from 41,447
Mcf
in 2006 with the average price also decreasing 7% to $1.69 per Mcf from $1.82
per Mcf. The volume decrease was a result of an operations decision to use
the
gas production for operating power generation and market only the unused excess.
In
Argentina, crude oil and NGL production after 12% royalties for the year ended
December 31, 2007 increased 63% to 207,912 barrels compared to 127,712
barrels for 2006. This increased production includes 89,361 barrels from Palmar
Largo, 77,971 barrels from El Vinalar and 40,039 barrels from Chivil. Average
daily production for the year was 245 barrels from Palmar Largo, 214 barrels
from El Vinalar and 110 barrels from Chivil. Natural gas production, after
royalties of 12%, at Nacatimbay in 2007 was 26,631 Mcf as compared to 41,447
Mcf
in 2006. For 2006, Argentina’s crude oil production after 12% royalties was
127,712 barrels, including 118,121 barrels from Palmar Largo, 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 production
for these periods in 2006 was 324 barrels from Palmar Largo, 42 barrels from
El
Vinalar (21 barrels per day for the year) and 63 barrels (5 barrels per day
for
the year) from Chivil.
In
Argentina, net revenue for the year ended December 31, 2007, after
deducting royalties at an average royalty rate of 12% of production revenue,
and
after deducting turnover taxes, increased 60% to $8,059,486 ($38.76 per barrel)
for oil and NGLs and decreased 40% to $44,971 ($1.69 per Mcf) for natural gas
as
compared to $5,033,363 ($39.41 per barrel) and $75,488 ($1.82 per Mcf),
respectively, for 2006. Oil and natural gas prices are effectively regulated
in
Argentina. Although production from most properties has increased due to a
full
year’s production in 2007 as compared to 2006, domestic prices received have
decreased due to the impact of increased export taxes levied by the Federal
Government.
18
In
Colombia, crude oil and NGL production, after government royalties ranging
from
8% to 20% and a third party two percent overriding royalty, for the year ended
December 31, 2007 increased 158% to 333,157 barrels as compared to 129,209
barrels for 2006. This increased production includes 112,662 barrels from the
Santana block, 60,533 barrels from the Guayuyaco block (excluding the Juanambu
area), 38,119 barrels from the Juanambu area and 125,163 barrels from the Chaza
block (Costayaco area). The average daily production for the year was 309
barrels per day from the Santana block, 166 barrels per day from the Guayuyaco
block (excluding the Juanambu area), and 104 barrels per day from the Juanambu
area and 343 per day from the Chaza block. For 2006, Colombia’s production and
results of operations commenced June 21, 2006 in conjunction with our
acquisition of Argosy. Production after royalties was 129,209 barrels for the
period from June 21 to December 31, 2006, comprising 65,176 barrels
from the Santana block and 64,033 barrels from the Guayuyaco block, representing
a combined average production rate of 692 barrels per day for the period (354
barrels per day for the year). The significant increase is as result of a full
year of production and two new discoveries, one in the Juanambu area of the
Guayuyaco block and the other in the Costayaco area of the Chaza block which
came on production in the third quarter of 2007.
In
Colombia, crude oil and NGL revenue, net of royalties, for the year ended
December 31, 2007 increased 259% to $23,748,155 or $71.28 per barrel as compared
to $6,612,190 and $51.17 per barrel for 2006. Besides the increase in production
as a result of the new discovery wells and a full year of production from the
other areas, revenue increased due to the increased price of oil received based
on a higher WTI price in 2007.
Interest
income earned on our cash deposits for the year ended December 31, 2007
increased 21% to $425,542 as compared to $351,872 for 2006. Although our cash
balances held by corporate from funds raised mid-year 2006 through private
placements have decreased, the increase in receipts from crude oil sales
throughout 2007 has offset this decrease, resulting in an increase in interest
revenue.
Operating
Expenses
|
|
Year
Ended December 31,
|
|
|||||||||||||||||||||||||||||
|
|
2007
|
2006
|
Change
from Prior Year
|
||||||||||||||||||||||||||||
|
|
Argentina
|
Colombia
|
Total
|
Argentina
|
Colombia
|
Total
|
Argentina
|
Colombia
|
Total
|
||||||||||||||||||||||
|
Operating
Expense
|
|||||||||||||||||||||||||||||||
|
Operating
Expense
|
$
|
6,327,276
|
$
|
4,097,336
|
$
|
10,424,612
|
$
|
2,846,705
|
$
|
1,386,765
|
$
|
4,233,470
|
122
|
%
|
195
|
%
|
146
|
%
|
|||||||||||||
|
Other
- Corporate - Peru Operations
|
|
|
49,756
|
|
|
-
|
|
|
|
100
|
%
|
||||||||||||||||||||
|
|
$
|
6,327,276
|
$
|
4,097,336
|
$
|
10,474,368
|
$
|
2,846,705
|
$
|
1,386,765
|
$
|
4,233,470
|
147
|
%
|
|||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Operating
expense per Boe
|
$
|
30.24
|
$
|
12.30
|
$
|
19.31
|
$
|
21.93
|
$
|
10.73
|
$
|
16.35
|
38
|
%
|
15
|
%
|
|
18
|
%
|
||||||||||||
|
|
|||||||||||||||||||||||||||||||
For
the
year ended December 31, 2007, operating expenses increased 147% to
$10,474,368 ($19.31 per Boe) compared to $4,233,470 ($16.35 per Boe) in 2006,
reflecting the inclusion in 2007 of a full year of Colombian and Argentine
operating activities for those properties. The operations for the new discovery
wells at Juanambu and Costayaco commenced in the third quarter of 2007
contributing to the increase in operating costs. In 2006, Argentina’s operations
included a full year operations at Palmar Largo, four months at Nacatimbay,
six
months of activities at El Vinalar and one month at Chivil. Colombia’s
operations commenced June 21, 2006 as a result of the purchase of
Argosy.
In
Argentina, operating expenses for 2007 increased 122% to $6,327,276 ($30.24
per
Boe) as compared to $2,846,705 for 2006 ($21.93 per Boe). The 2007 operating
costs are higher than in 2006 due to workovers undertaken in 2007. Argentina’s
2007 operating costs include $9.71 per Boe ($2.27 per Boe in 2006) of costs
associated with budgeted workover projects undertaken to sustain production.
19
In
Colombia, operating expenses increased 195% to $4,097,336 in 2007 ($12.30 per
Boe) as compared to $1,386,765 for the period June 21 to December 31,
2006 ($10.73 per Boe). The 2007 operating costs included $2.69 per Boe ($4.11
per Boe in 2006) of budgeted workover expense mainly carried out in the
Guayuyaco block.
Depletion,
Depreciation and Accretion (“DD&A”)
|
|
Year
Ended December 31,
|
|
|||||||||||||||||||||||||||||
|
|
2007
|
2006
|
Change
from Prior Year
|
||||||||||||||||||||||||||||
|
|
Argentina
|
Colombia
|
Total
|
Argentina
|
Colombia
|
Total
|
Argentina
|
Colombia
|
Total
|
||||||||||||||||||||||
|
DD&A
|
|||||||||||||||||||||||||||||||
|
DD&A
|
$
|
2,476,834
|
$
|
6,850,086
|
$
|
9,326,920
|
$
|
1,550,544
|
$
|
2,494,317
|
$
|
4,044,861
|
60
|
%
|
175
|
%
|
131
|
%
|
|||||||||||||
|
Other
- Corporate
|
|
|
87,987
|
|
|
43,576
|
|
|
|
102
|
%
|
||||||||||||||||||||
|
|
|
|
$
|
9,414,907
|
|
|
$
|
4,088,437
|
|
|
|
130
|
%
|
||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
DD&A
per Boe
|
$
|
11.84
|
$
|
20.56
|
$
|
17.36
|
$
|
11.95
|
$
|
19.30
|
$
|
15.79
|
-1
|
%
|
7
|
%
|
|
10
|
%
|
||||||||||||
Depreciation,
depletion and accretion for the year ended December 31, 2007 increased 130%
to
$9,414,907 from $4,088,437 for 2006. For Argentina, DD&A increased 60% to
$2,476,834 from $1,550,544 in 2006. The increase in Argentina is mainly due
to
decreased proved reserves offset by a decreasing proved depletable cost base
resulting in an 1% decrease of the DD&A rate to $11.84 per Boe in 2007 from
$11.95 per Boe in 2006. This decreasing proved depletable cost base is a result
of the mature nature of the properties held and our 2007 focused capital
spending on the Colombian exploration program.
For
Colombia, DD&A increased 175% to $6,850,086 from $2,494,317 for 2006. The
increase in Colombia is primarily due to the increase in production over the
prior year. Though our Colombian proved reserves increased significantly in
2007, Gran Tierra Energy also invested much of its 2007 capital spending on
the
Colombia exploration program. As a result, our Colombian proved depletable
cost
base has significantly increased resulting in a 2007 depletion rate of $20.56
per Boe as compared to $19.30 per Boe for 2006.
The
2006
DD&A includes a full year of operations at Palmar Largo, additional
Argentina acquisitions in 2006, and the inclusion of Colombia operations in
June 2006.
General
and Administrative (“G&A”)
|
|
Year
Ended December 31,
|
|
|||||||||||||||||||||||||||||
|
|
2007
|
2006
|
Change
from Prior Year
|
||||||||||||||||||||||||||||
|
|
Argentina
|
Colombia
|
Total
|
Argentina
|
Colombia
|
Total
|
Argentina
|
Colombia
|
Total
|
||||||||||||||||||||||
|
G&A
|
|||||||||||||||||||||||||||||||
|
G&A
|
$
|
1,704,410
|
$
|
1,695,825
|
$
|
3,400,235
|
$
|
1,122,980
|
$
|
897,494
|
$
|
2,020,474
|
52
|
%
|
89
|
%
|
68
|
%
|
|||||||||||||
|
Other
- Corporate
|
|
|
$
|
6,831,717
|
|
|
$
|
4,978,330
|
|
|
|
37
|
%
|
||||||||||||||||||
|
|
|
$
|
10,231,952
|
|
|
$
|
6,998,804
|
|
|
|
46
|
%
|
|||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
G&A
per Boe
|
$
|
8.15
|
$
|
5.09
|
$
|
18.86
|
$
|
8.65
|
$
|
6.95
|
$
|
27.02
|
-6
|
%
|
-27
|
%
|
|
-30
|
%
|
||||||||||||
General
and administrative costs for the year ended December 31, 2007 increased 46%
to
$10,231,952 from $6,998,804 for 2006. The increase in G&A was due to the
inclusion of a full year of business activities related to the acquisition
of
the Argosy properties in Colombia and additional properties in Argentina,
corporate stewardship costs including Sarbanes Oxley compliance, securities
registration related costs and increased stock compensation due to increased
option grants. Argentina’s G&A cost for the year ended December 31, 2007
increased 52% to $1,704,410 from $1,122,980 in 2006 as a result of the need
for
increased administration staff and professional costs associated with properties
purchased late in 2006. Colombia’s G&A for the year ended December 31, 2007
increased 89% to $1,695,825 from $897,494 in 2006 mainly due to 2006 G&A
costs include those costs during the period commencing on the date of
acquisition of Argosy, to the year end.
20
Liquidated
Damages
|
|
Year
Ended December 31,
|
Change
from Prior
|
||||||||
|
|
2007
|
2006
|
Year
|
|||||||
|
Liquidation
Damages
|
$
|
7,366,949
|
$
|
1,527,988
|
382
|
%
|
||||
Liquidated
damages expensed in 2007 relates 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. 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 the warrants from $1.75 to $1.05 and extending the life of the warrants
by
one year.
The
amendment to the terms of the warrants has been reflected as an increase of
$8.6
million in the value of warrants recorded on the consolidated balance
sheet.
Financial
Derivative Loss
|
Financial
Derivative Loss
|
Year
Ended
December
31, 2007
|
|||
|
Realized
financial derivative loss
|
$
|
391,345
|
||
|
Current
portion of unrealized financial derivative Loss
|
$
|
1,593,629
|
||
|
Long-term
portion of unrealized financial derivative loss
|
$
|
1,054,716
|
||
|
Total
unrealized financial derivative loss
|
$
|
2,648,345
|
||
|
Financial
derivative loss
|
$
|
3,039,690
|
||
As
required under the terms of the Credit Facility with Standard Bank Plc, in
February of 2007, we entered into a derivative instrument for the purpose of
obtaining protection against fluctuations in the price of oil in respect of
at
least 50% of the June 30, 2006 Independent Reserve Evaluation Report 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, Gran Tierra
Energy is required to maintain compliance with specified financial and operating
covenants.
Foreign
Exchange Loss
|
|
Year
Ended December 31,
|
Change
from Prior
|
||||||||
|
|
2007
|
2006
|
Year
|
|||||||
|
Foreign
Exchange (Gain) Loss
|
$
|
(77,275
|
)
|
$
|
370,538
|
121
|
%
|
|||
The
foreign exchange gain for the year ended December 31, 2007 increased to $77,275
from a loss of $370,538 for 2006. The foreign exchange gain resulted from the
increase in 2007 of the value of the Colombian peso as compared to the US
dollar.
Income
Tax
|
|
Year
Ended December 31,
|
Change
from Prior
|
||||||||
|
|
2007
|
2006
|
Year
|
|||||||
|
Income
Tax
|
$
|
294,767
|
$
|
677,380
|
-56
|
%
|
||||
The
income tax expense for the year ended December 31, 2007 decreased 56% to
$294,767 from $677,380 for 2006. The Colombia operations generated a net income
before tax of $11,484,448 in 2007, which resulted in a local income tax
liability, offset by a 2007 income tax recovery arising from losses of
$2,740,990 incurred in Argentina. In Colombia, we have used available prior
period loss carryforwards and Colombian income tax investment incentives, which
permit additional tax deductions associated with capital investment in producing
oil and natural gas properties, to decrease our current income tax otherwise
payable.
21
Net
Income (Loss) Available to Common Shares
|
Year
Ended December 31,
|
|||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
Change
from Prior Year
|
|||||||||||||||||||||||||||||||||||
|
Argentina
|
Colombia
|
Corporate
|
Total
|
Argentina
|
Colombia
|
Corporate
|
Total
|
Argentina
|
Colombia
|
Corporate
|
Total
|
||||||||||||||||||||||||||
|
Net
Loss
|
|||||||||||||||||||||||||||||||||||||
|
Net
loss (income) before income tax
|
$
|
2,474,990
|
$
|
(11,484,448
|
)
|
$
|
17,181,895
|
$
|
8,172,437
|
$
|
411,028
|
$
|
(1,486,075
|
)
|
$
|
6,221,371
|
$
|
5,146,324
|
502
|
%
|
673
|
%
|
176
|
%
|
59
|
%
|
|||||||||||
|
Income
tax
|
|
|
-
|
294,767
|
|
|
|
677,380
|
|
|
|
-56
|
%
|
||||||||||||||||||||||||
|
Net
Loss
|
|
|
|
$
|
8,467,204
|
|
|
|
$
|
5,823,704
|
|
|
|
45
|
%
|
||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||
|
Loss
per share - Basic and Diluted
|
|||||||||||||||||||||||||||||||||||||
|
Weighted
Average Outstanding Common Shares - Basic and Diluted
|
95,096,311
|
72,443,501
|
31
|
%
|
|||||||||||||||||||||||||||||||||
|
Loss
per share - Basic and Diluted
|
|
|
|
$
|
0.09
|
|
|
|
$
|
0.08
|
|
|
|
13
|
%
|
||||||||||||||||||||||
The
net
loss for the year ended December 31, 2007 increased 45% to $8,467,204 or
$0.09 per share from a loss of $5,823,704, or $0.08 per share in 2006. This
loss
includes a full year of operating activities for Colombia versus just over
six
months in 2006. The primary reason for the increase is due to the liquidation
damages, as explained above, corporate stewardship costs including Sarbanes
Oxley compliance, securities registration related costs and increased stock
compensation due to increased option grants. Argentina’s 2007 operating segment
loss increased 502% to $2,474,990 from a loss of $411,028 in 2006 primarily
due
to the increase in budgeted workover costs required to maintain production
levels. Colombia increased its 2007 operating segment income by 673% to
$11,484,448 from $1,486,075 in 2006 is a result to the increased production
realized from the new discovery wells and the increase in price received for
all
production in 2007 versus 2006.
Results
of Operations for the years ended December 31, 2006 as compared to period
ended December 31, 2005
Revenue
and Other Income
A
summary
of selected production, revenue and price information for the year ended
December 31, 2006 and the period ended December 31, 2005 is presented in the
following table:
|
|
|
Year
Ended December 31, 2006
|
|
Periods
Ended December 31, 2005
|
|
Change
from Prior Period
|
|
|||||||||||||||||||||
|
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
|||||||||
|
Production,
net of royalties (2)
|
|
|||||||||||||||||||||||||||
|
Oil
and NGLs (Bbls)
|
|
|
127,712
|
|
|
129,209
|
|
|
256,921
|
|
|
25,132
|
|
|
-
|
|
|
25,132
|
|
|
408
|
%
|
|
100
|
%
|
|
922
|
%
|
|
Gas
(Mcf)
|
|
|
41,447
|
|
|
-
|
|
|
41,447
|
|
|
180,320
|
|
|
-
|
|
|
180,320
|
|
|
-77
|
%
|
|
-
|
|
|
-77
|
%
|
|
Oil,
Gas and NGLs (Boe) (1)
|
|
|
129,784
|
|
|
129,209
|
|
|
258,993
|
|
|
34,148
|
|
|
-
|
|
|
34,148
|
|
|
280
|
%
|
|
100
|
%
|
|
658
|
%
|
|
Revenue
and other income
|
||||||||||||||||||||||||||||
|
Oil
and NGLs (Bbls)
|
|
$
|
5,033,363
|
|
$
|
6,612,190
|
|
$
|
11,645,553
|
|
$
|
946,098
|
|
|
-
|
|
$
|
946,098
|
|
|
432
|
%
|
|
100
|
%
|
|
1,131
|
%
|
|
Gas
|
|
|
75,488
|
|
|
-
|
|
|
75,488
|
|
|
113,199
|
|
|
-
|
|
$
|
113,199
|
|
|
-33
|
%
|
|
-
|
|
|
-33
|
%
|
|
|
|
$
|
5,108,851
|
|
$
|
6,612,190
|
|
$
|
11,721,041
|
|
$
|
1,059,297
|
|
|
-
|
|
$
|
1,059,297
|
|
|
382
|
%
|
|
100
|
%
|
|
1,006
|
%
|
|
Other
- Corporate
|
|
|
|
|
|
|
|
$
|
351,872
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
$
|
12,072,913
|
|
|
|
|
|
|
|
$
|
1,059,297
|
|
|
|
|
|
|
|
|
1,040
|
%
|
|
Average
Prices
|
||||||||||||||||||||||||||||
|
Oil
and NGLs (Per Bbl)
|
|
$
|
39.41
|
|
$
|
51.17
|
|
$
|
45.33
|
|
$
|
37.65
|
|
|
-
|
|
$
|
37.65
|
|
|
5
|
%
|
|
100
|
%
|
|
20
|
%
|
|
Gas
(Per Mcf)
|
|
$
|
1.82
|
|
|
-
|
|
$
|
1.82
|
|
$
|
0.63
|
|
|
-
|
|
$
|
0.63
|
|
|
189
|
%
|
|
-
|
|
|
189
|
%
|
(1)
Gas
volumes are converted to barrels (“bbl’s”) of oil equivalent ("Boe") at the rate
of 20 thousand cubic feet ("Mcf") of gas per barrel of oil based upon the
approximate relative values of natural gas and oil. Natural Gas Liquids (NGLs")
volumes are converted to Boe’s on a one-to-one basis with oil.
(2)
Production represents production volumes adjusted for inventory
changes.
22
Crude
oil
and NGL production for the year ended December 31, 2006 increased 922 % to
256,921 barrels from 25,132 barrels for the year ended December 31, 2005. The
average price received per barrel of oil increased 20% to $45.33 per barrel
for
2006 from $37.65 per barrel in 2005. As a result, revenue and other income
for
the year ended December 31, 2006 increased 1,040% to $12,072,913 compared
to $1,059,297 for the year ended December 31, 2005. The 2006 production
included Colombian production subsequent to the acquisition of Argosy in
June 20, 2006. Also, 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, 2006. Revenues in 2005 reflect only the Argentina
operations for a four month period from September 1, 2005, the date of
acquisition of the Palmar Largo and Nacatimbay properties. Natural gas
production in 2006 decreased 77% to 41,447 Mcf from 180,320 Mcf in 2006 with
the
average price increasing 189% to $1.82 per Mcf from $0.63 per Mcf. The volume
decrease was a result of an operations decision to use the gas production for
operating power generation and market only the unused excess.
In
Argentina, crude oil and NGL production after 12% royalties for the year ended
December 31, 2006 increased 408% to 127,712 barrels compared to 25,132
barrels for 2005. This increased production includes 118,121 barrels from Palmar
Largo, 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 production for these periods in 2006 was 324 barrels from Palmar
Largo, 42 barrels from El Vinalar (21 barrels per day for the year) and 63
barrels (5 barrels per day for the year) from Chivil. Oil sales at Palmar Largo
during 2005 were 25,132 barrels, or an average of 206 barrels per day for the
period (69 barrels per day for the year), due to severe weather conditions
in
Northern Argentina, as extreme rainfall and poor road conditions curtailed
tanker truck traffic through November and December 2005. Natural gas sales,
after royalties of 12%, at Nacatimbay in 2006 were 41,447 Mcf as compared to
180,320 Mcf in 2005.
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, increased 432% to $5,033,363 ($39.41 per barrel)
for oil and NGLs and decreased 33% to $75,488 ($1.82 per Mcf) for natural gas
as
compared to $946,098 ($37.65 per barrel) and $113,199 ($0.63 per Mcf),
respectively, for 2005. Increased production from most properties due to a
full
year’s production in 2006 as compared to a partial year’s production in 2005 and
increased prices received due to increased world oil prices in 2006 as compared
to 2005 have resulted in the increase in net revenue. Oil and natural gas prices
are effectively regulated in Argentina.
In
Colombia, crude oil and NGL production, after royalties ranging from 10% to
22%
(including a 2 percent overriding royalty), for the year ended December 31,
2006
increased 100% to 129,209 barrels as compared to nil production for 2005.
Colombia’s production and results of operations began June 21, 2006 in
conjunction with our acquisition of Argosy. Production after royalties was
comprised of 65,176 barrels from the Santana block and 64,033 barrels from
the
Guayuyaco block, representing a combined average production rate of 692 barrels
per day for the period (354 barrels per day for the year).
In
Colombia, crude oil and NGL revenue, net of royalties, for the year ended
December 31, 2006 increased 100% to $6,612,190 and $51.17 per barrel as compared
to no revenue for 2006.
Interest
income earned on our cash deposits was $351,872 for the year ended
December 31, 2006 and none in 2005.
Operating
Expenses
|
|
|
Year
Ended December 31,
|
|
Period
Ended December 31,
|
|
|
|
|||||||||||||||||||||
|
|
|
2006
|
|
2005
|
|
Change
from Prior Year
|
|
|||||||||||||||||||||
|
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
|||||||||
|
Operating
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Operating
Expense
|
|
$
|
2,846,705
|
|
$
|
1,386,765
|
|
$
|
4,233,470
|
|
$
|
395,287
|
|
$
|
-
|
|
$
|
395,287
|
|
|
620
|
%
|
|
100
|
%
|
|
971
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expense per Boe
|
|
$
|
21.93
|
|
$
|
10.73
|
|
$
|
16.35
|
|
$
|
11.58
|
|
|
|
|
$
|
11.58
|
|
|
89
|
%
|
|
100
|
%
|
|
41
|
%
|
23
For
the
year ended December 31, 2006, operating expenses increased 971% to
$4,233,470 ($16.35 per Boe) compared to $395,287 ($11.58 per Boe) in 2005,
reflecting the inclusion in Argentina of operations for a full year at Palmar
Largo, four months at Nacatimbay, six months of activities at El Vinalar and
one
month at Chivil. Colombia’s operations commenced June 21, 2006 as a result
of the purchase of Argosy. 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.
In
Argentina, operating expenses for 2006 increased 620% to $2,846,705 ($21.93
per
Boe) as compared to $395,287 for 2005 ($11.58 per Boe). The current year
operating costs are higher than in the same periods of 2006 due to workovers
undertaken in the current year, and 2005 contains only four months of operations
commencing from the initial purchase of Argentine assets.
In
Colombia, operating expenses were $1,386,765 ($10.73 per Boe) for the period
June 21 to December 31, 2006. Colombia’s 2006 operating costs included
$4.11 per Boe of budgeted workover expense carried out in the Guayuyaco and
Santana blocks.
Depletion,
Depreciation and Accretion
|
|
|
Year
Ended December 31,
|
|
Period
Ended December 31,
|
|
|
|
|||||||||||||||||||||
|
|
|
2006
|
|
2005
|
|
Change
from Prior Period
|
|
|||||||||||||||||||||
|
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
|||||||||
|
DD&A
|
|
|||||||||||||||||||||||||||
|
DD&A
|
|
$
|
1,550,544
|
|
$
|
2,494,317
|
|
$
|
4,044,861
|
|
$
|
453,022
|
|
$
|
-
|
|
$
|
453,022
|
|
|
242
|
%
|
|
100
|
%
|
|
793
|
%
|
|
Other
- Corporate
|
|
|
|
|
|
|
|
$
|
43,576
|
|
|
|
|
|
|
|
$
|
9,097
|
|
|
|
|
|
|
|
|
379
|
%
|
|
|
|
|
|
|
|
|
|
$
|
4,088,437
|
|
|
|
|
|
|
|
$
|
462,119
|
|
|
|
|
|
|
|
|
785
|
%
|
|
|
||||||||||||||||||||||||||||
|
DD&A
per Boe
|
|
$
|
11.95
|
|
$
|
19.30
|
|
$
|
15.79
|
|
$
|
13.27
|
|
|
-
|
|
$
|
13.53
|
|
|
-10
|
%
|
|
100
|
%
|
|
17
|
%
|
Depreciation,
depletion and accretion for the year ended December 31, 2006 increased 785%
to
$4,088,437 from $462,119 for 2005. The 2006 DD&A includes a full year of
operations at Palmar Largo, additional Argentina acquisitions in 2006, and
the
inclusion of Colombia operations in June 2006. Depreciation, depletion and
accretion recorded in 2005 primarily relates to the depletion of the acquisition
cost for the Argentina properties.
General
and Administrative
|
|
|
Year
Ended December 31,
|
|
Period
Ended December 31,
|
|
|
|
|||||||||||||||||||||
|
|
|
2006
|
|
2005
|
|
Change
from Prior Period
|
|
|||||||||||||||||||||
|
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
|||||||||
|
G&A
|
|
|||||||||||||||||||||||||||
|
G&A
|
|
$
|
1,122,980
|
|
$
|
897,494
|
|
$
|
2,020,474
|
|
$
|
331,033
|
|
$
|
-
|
|
$
|
331,033
|
|
|
239
|
%
|
|
100
|
%
|
|
510
|
%
|
|
Other
- Corporate
|
|
|
|
|
|
|
|
$
|
4,978,330
|
|
|
|
|
|
|
|
$
|
2,151,037
|
|
|
|
|
|
|
|
|
131
|
%
|
|
|
|
|
|
|
|
|
|
$
|
6,998,804
|
|
|
|
|
|
|
|
$
|
2,482,070
|
|
|
|
|
|
|
|
|
182
|
%
|
|
|
||||||||||||||||||||||||||||
|
G&A
per Boe
|
|
$
|
8.65
|
|
$
|
6.95
|
|
$
|
27.02
|
|
$
|
9.69
|
|
|
|
|
$
|
72.69
|
|
|
-11
|
%
|
|
100
|
%
|
|
-63
|
%
|
General
and administrative costs for the year ended December 31, 2006 increased 182%
to
$6,998,804 from $2,482,070 for 2006. 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.
24
Liquidated
Damages
|
|
Year
Ended
December
31,
|
Period
Ended
December
31,
|
Change
from Prior
|
|||||||
|
|
2006
|
2005
|
Period
|
|||||||
|
Liquidation
Damages
|
$
|
1,527,988
|
$
|
-
|
100
|
%
|
||||
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.
Foreign
Exchange Loss
|
|
Year
Ended
December
31,
|
Period
Ended
December
31,
|
Change
from Prior
|
|||||||
|
|
2006
|
2005
|
Period
|
|||||||
|
Foreign
Exchange (Gain) Loss
|
$
|
370,538
|
$
|
(31,271
|
)
|
1,285
|
%
|
|||
The
foreign exchange loss for the year ended December 31, 2006 increased to $370,538
from 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
|
|
Year
Ended
December
31,
|
Period
Ended
December
31,
|
Change
from Prior
|
|||||||
|
|
2006
|
2005
|
Period
|
|||||||
|
Income
Tax Expense (Recovery)
|
$
|
677,380
|
$
|
(29,228
|
)
|
2,418
|
%
|
|||
The
income tax expense for the year ended December 31, 2006 increased 2,418% to
$677,380 from a recovery of $29,228 for 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
|
|
|
Year
Ended December 31,
|
|
Period
Ended December 31,
|
|
|
|
||||||||||||||||||||||||||||||
|
|
|
2006
|
|
2005
|
|
Change
from Prior Period
|
|
||||||||||||||||||||||||||||||
|
|
|
Argentina
|
|
Colombia
|
|
Corporate
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Corporate
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Corporate
|
|
Total
|
|
||||||||||||
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Net
loss (income) before income tax
|
|
$
|
411,028
|
|
$
|
(1,486,075
|
)
|
$
|
6,221,371
|
|
$
|
5,146,324
|
|
$
|
112,445
|
|
$
|
-
|
|
$
|
2,136,463
|
|
$
|
2,248,908
|
|
|
266
|
%
|
|
100
|
%
|
|
191
|
%
|
|
129
|
%
|
|
Income
tax
|
|
|
|
|
|
|
|
|
|
|
|
677,380
|
|
|
|
|
|
|
|
|
|
|
|
(29,228
|
)
|
|
|
|
|
|
|
|
|
|
|
-2,418
|
%
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
$
|
5,823,704
|
|
|
|
|
|
|
|
|
|
|
$
|
2,219,680
|
|
|
|
|
|
|
|
|
|
|
|
162
|
%
|
|
Loss
per share - Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Outstanding Common Shares - Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
72,443,501
|
|
|
|
|
|
|
|
|
|
|
|
13,538,149
|
|
|
|
|
|
|
|
|
|
|
|
435
|
%
|
|
Loss
per share - Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
-50
|
%
|
25
The
net
loss for the year ended December 31, 2006 increased 162% to $5,823,704 or
$0.08 per share from a loss of $2,219,680, or $0.16 per share in 2005. 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 reflect four months of operating activity in
Argentina, twelve months of business activity and significant costs relating
to
the November 10, 2005 share exchange transactions.
Liquidity
and Capital Resources
During
2007, we relied upon cash provided by operations and the proceeds of 2006
private placements to fund ongoing operations and our capital investment
program. As of December 31, 2007, our cash and cash equivalents balance was
$18,188,817 and our current assets (including cash and cash equivalents balance)
less current liabilities were $8,058,049, compared to cash and cash equivalents
of $24,100,780 and current assets (including cash and cash equivalents balance)
less current liabilities of $14,541,498 at December 31, 2006. 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,
described below.
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 a 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. As a result of Standard Bank Plc’s review of our
Mid-Year 2007 Independent Reserve Audit, we have received preliminary approval
to increase our borrowing base to $20 million. 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 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 the June 30, 2006 Independent Reserve Evaluation
Report projected aggregate net share of Colombian production after royalties
for
the three-year term of the Facility. As of December 31, 2007, 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
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. For the year ended December 31, 2007,
we recorded a loss of $3,039,690 on derivative financial
instruments.
During
the year ended December 31, 2007, we reduced our cash balances by
$5,911,963 as compared to an increase in 2006 of $21,879,324. Net cash provided
by operating activities for the year ended December 31, 2007 increased to
$6,214,677 as compared to net cash used in operating activities of $829,620
for
2006. The increase was mainly due to the significant increase in oil production
and the associated sales price received offset by costs associated with budgeted
workovers in both Colombia and Argentina, G&A expenditures associated with
increased stewardship costs, including Sarbanes Oxley related expenditures,
and
securities registration issues, as further explained above in our review of
the
results of operations. Net cash used in investing activities for the year ended
December 31, 2007 decreased 72% to $12,845,943 from $45,366,912 in 2006. During
2007, we expended $13,429,570 (net of non-cash working capital related to
capital expenditures of $2,799,580) in oil and gas property expenditures
relating to our drilling and other oilfield activities primarily in Colombia
as
compared to $7,434,463 (net of non-cash working capital expenditures of
$10,599,199) for 2006. In 2006, we expended $36,911,959 related to the purchase
of Argosy. Net cash provided by financing activities for the year ended December
31, 2007 was $719,303 as a result of the issuance of common shares upon exercise
of warrants. In 2006, net cash provided by financing activities was $68,075,856
mainly as a result of the issuance of common shares through private
placements.
During
the year ended December 31, 2006, we increased our cash balances by
$21,879,324 and funded our capital expenditures and operating expenditures
from
proceeds of a series of private placements of our securities. Cash outflows
comprised $829,620 from operating activities and cash inflows of $68,075,856
from financing activities, offset by cash outflows of $45,366,912 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 at December 31,
2006, 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. At December 31, 2006, we were in discussions with those
stockholders regarding whether or not they would exercise that
right.
26
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 $44,346,422 (net of
non-cash working capital related to capital expenditures of $10,599,199) 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 $8,707,595, predominantly for the acquisition cost of the Palmar
Largo, Nacatimbay and Ipaguazu interests in Argentina.
During
the year ended December 31, 2007, we spent $13,429,570 (net of non-cash working
capital related to capital expenditures of $2,799,580) on capital projects.
During 2007, we drilled seven wells, conducted several workovers of existing
wells, and conducted technical studies on our existing acreage.
In
Argentina, capital expenditures for the year ended December 31, 2007, were
$1,679,305, including $222,932 of accrued expenditures at December 31, 2007.
We
incurred costs of $659,704 to complete the Puesto Climaco-2 sidetrack well
in
the Vinalar Block which was drilled in December 2006. Capital expenditures
also
include the acquisition and reprocessing of seismic in several areas, facility
upgrades in Parma Largo and non-cash capitalized stock-based compensation
expense.
In
Colombia, capital expenditures for the year ended December 31, 2007, were
$14,214,835, including $2,525,225 of accrued expenditures at December 31, 2007.
In Colombia, we drilled six new wells in 2007. We drilled the Laura-1
exploration well in the Talora Block in January 2007, the Caneyes-1 exploration
well in the Rio Magdalena Block in February 2007, and the Soyona-1 and Cachapa-1
exploration wells in the Primavera Block in April and March 2007, respectively.
These wells were plugged and abandoned. We drilled the Caneyes-1 well at a
net
cost to us of $1,669,888 and the drilling costs for the three other wells
were paid by our partners.
We
drilled successful wells in the Chaza and Guayayaco areas. We drilled the
Juanambu-1 well in March 2007 and encountered hydrocarbon shows in four zones.
Testing established the presence of a significant oil accumulation. We drilled
and tested the Costayaco-1 well, which also indicated a significant accumulation
of oil in a number of zones. Consequently, our proven reserves in Colombia
have
substantially increased. We put these wells on production in the third quarter
of 2007. We drilled the Juanambu-1 and Costayaco-1 wells and commenced
drilling of Costayaco-2 for a net cost of $7,598,626. We incurred costs of
$4,946,321 on other projects in Colombia during 2007 including
$1,673,349 for completion of a 3-D seismic program in Costayaco and $1,162,923
related to a 2-D seismic program in the Rio Magdalena block.
We
expect
to incur additional development costs as facilities are upgraded in both
locations to facilitate production. In addition, we initiated drilling of
Costayaco-2 in December 2007 and completed drilling and cased the well in
January 2008. We commenced drilling Costayaco-3 in January 2008. We are planning
further field development in these areas as a result of the Costayaco and
Juanambu discoveries. We completed a new 3-D seismic data acquisition program
over the Costayaco structure to optimize positioning of future drilling
locations.
In
Peru,
operations in 2007 included technical studies of Block 122 and Block 128 and
the
initiation of an aero magnetic and gravity survey over both blocks. This program
commenced in the fourth quarter of 2007 and we expect it to be completed in
2008. Expenditures in 2007 were $656,244, with estimated expenditures to
complete the work in 2008 of $1.5 million.
Plans
for
2008 include the drilling of two exploration wells (at no cost to Gran Tierra
Energy) and six development wells (approximately 48% of the cost to be paid
by
Gran Tierra Energy) in Colombia and one exploration well (50% of the cost to
be
paid by Gran Tierra Energy) in Argentina along with related facility and
pipeline infrastructure for a total capital expenditure budget of $56.8 million.
We contemplate several well workovers for wells on existing producing and
shut-in fields. In addition to current budgeted 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 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 as holders of our warrants to purchase common shares decide
to
exercise the warrants.
27
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
December 31, 2007 and 2006, we had no off-balance sheet
arrangements.
Contractual
Obligations
Gran
Tierra Energy holds three categories of operating leases: office, vehicle and
housing. We pay monthly costs of $57,638 for office leases, $4,791 for vehicle
leases, $9,400 for a compressor and $2,561 for certain employee accommodation
leases in Colombia.
We
entered into four capital leases in 2006 for office equipment in Calgary,
Canada. The leases expire between 2008 and 2011. As of December 31, 2007
capital assets were valued at $21,841 (net of amortization of $17,870). Total
rent expense for 2007 was $291,975 (2006 - $221,477; 2005 -
$26,904).
Capital
lease agreements contain interest rates between 4.75 and 20.5 percent and mature
over one to four years. Interest expense incurred under these capital
leases to December 31, 2007 was $2,657 (2006 - $2,346).
We
have
contracted with a third party to provide catering services for our field
operations in Colombia. The contract ends January 14, 2009. The remaining
contractual commitment is $280,771 to be incurred evenly over the remaining
duration of the contract.
We
have
contracted with a third party to provide a helicopter for field transportation
for our Colombia field operations. The contract ends September 30, 2008. The
minimum obligation under the contract is for 30 flight hours per month at a
rate
of $880 per hour. The remaining nine month obligation is $237,600.
Future
lease payments and other contractual obligations at December 31, 2007 are
as follows:
|
|
Payments
Due in Period
|
|||||||||||||||
|
|
Total
|
Less
than 1 year
|
1-3
Years
|
3-5
years
|
more
than 5 years
|
|||||||||||
|
Catering
contract obligation
|
$
|
280,771
|
$
|
269,540
|
$
|
11,231
|
$
|
-
|
$
|
-
|
||||||
|
Helicopter
contract obligation
|
237,600
|
237,600
|
-
|
-
|
-
|
|||||||||||
|
Operating
lease obligations
|
2,581,233
|
833,799
|
1,460,629
|
286,805
|
-
|
|||||||||||
|
Capital
lease obligations
|
20,056
|
9,991
|
10,065
|
-
|
-
|
|||||||||||
|
Total
|
$
|
3,119,660
|
$
|
1,350,930
|
$
|
1,481,925
|
$
|
286,805
|
$
|
-
|
||||||
Critical
Accounting Estimates
Use
of Estimates
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
critical accounting policies used by management in the preparation of our
consolidated financial statements are those that are important both to the
presentation of our financial condition and results of operations and require
significant judgments by management with regards to estimates used. Our critical
accounting policies and significant judgments and estimates related to those
policies are discussed below. We have reviewed these critical accounting
policies with the Audit Committee of the Board of Directors.
28
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.
|
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 are audited at least annually by independent
qualified reserves consultants, Gaffney, Cline & Associates
Inc.
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 and Impairment
The
accounting for and disclosure of oil and gas producing activities requires
that
we choose between GAAP alternatives. We use the full cost method of accounting
for our oil and natural gas operations. Under this method, separate cost centers
are maintained for each country in which we incur costs. All costs incurred
in
the acquisition, exploration and development of properties (including costs
of
surrendered and abandoned leaseholds, delay lease rentals, dry holes and
overhead related to exploration and development activities) are capitalized.
The
sum of net capitalized costs and estimated future development costs of oil
and
natural gas properties for each full cost center are depleted using the
units-of-production method. Changes in estimates of proved reserves, future
development costs or asset retirement obligations are accounted for
prospectively in our depletion calculation.
29
Investments
in unproved properties are not depleted pending the determination of the
existence of proved reserves. Unproved properties are assessed periodically
to
ascertain whether impairment has occurred. Unproved properties the costs of
which are individually significant are assessed individually by considering
the
primary lease terms of the properties, the holding period of the properties,
and
geographic and geologic data obtained relating to the properties. Where it
is
not practicable to individually assess the amount of impairment of properties
for which costs are not individually significant, these properties are grouped
for purposes of assessing impairment. The amount of impairment assessed is
added
to the costs to be amortized in the appropriate full cost pool.
Companies
that use the full cost method of accounting for oil and natural gas exploration
and development activities are required to perform a ceiling test calculation
each quarter on a country-by-country basis. The ceiling limits these pooled
costs to the aggregate of the after-tax, present value, discounted at 10%,
of
future cash flows attributable to proved reserves, known as the standardized
measure, plus the lower of cost or market value of unproved properties less
any
associated tax effects. 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. If these capitalized costs exceed the ceiling, we will
record a write-down to the extent of such excess as a non-cash charge to
earnings. Any such write-down will reduce earnings in the period of occurrence
and result in lower DD&A expense in future periods. A write-down may not be
reversed in future periods, even though higher oil and natural gas prices may
subsequently increase the ceiling. Due to the complexity of the calculation,
we
are unable to provide a reasonable sensitivity analysis of the impact that
a
reserves estimate decrease would have on our assessment of impairment. A
reduction in oil and natural gas prices and/or estimated quantities of oil
and
natural gas reserves could result in a ceiling test write-down.
We
assessed our oil and gas properties for impairment as at December 31, 2007,
2006 and 2005 and found no impairment write-downs 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 $90.01 in Colombia
and $42.00 for our Argentina properties as at December 31, 2007. 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.
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 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 estimated future cash flows of the reporting unit. The goodwill
on our financial statements was a result of the Argosy acquisition, and relates
entirely to the Colombia reporting segment.
30
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.
To
assess
the realization of deferred tax assets, management considers whether it is
more
likely than not that some portion or all of the deferred tax assets will not
be
realized. The ultimate realization of deferred tax assets is dependent upon
the
generation of future taxable income during the periods in which those temporary
differences become deductible. We consider the scheduled reversal of deferred
tax liabilities, projected future taxable income and tax planning strategies
in
making this assessment. As of December 31, 2007, we had no deferred tax
assets for which management considers realization is more likely than
not.
Share-Based
Payment Arrangements
We
record
share-based payment arrangements in accordance with SFAS 123 (revised
2004), “Share-Based Payment” (“SFAS 123R”) which requires the measurement
and recognition of compensation expense for all share-based payment awards
made
to employees and directors including employee stock options based on estimated
fair values.
SFAS 123R
requires companies to estimate the fair value of share-based payment awards
on
the date of grant using an option-pricing model. The value of the portion of
the
award that is ultimately expected to vest is recognized as expense over the
requisite service periods in our Consolidated Statement of Operations.
Under
SFAS 123R, share-based compensation expense recognized during the period is
based on the value of the portion of share-based payment awards that is
ultimately expected to vest during the period. Compensation expense is
recognized using the accelerated method. As share-based compensation expense
recognized in the Consolidated Statements of Operations is based on awards
ultimately expected to vest, it has been reduced for estimated forfeitures.
SFAS 123R requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates.
Under
SFAS 123 R, we utilized a Black-Scholes option pricing model to measure the
fair value of stock options granted to employees. Our determination of fair
value of share-based payment awards on the date of grant using an option-pricing
model is affected by our stock price as well as assumptions regarding a number
of highly complex and subjective variables. These variables include, but are
not
limited to, our expected stock price volatility over the term of the awards,
and
actual and projected employee stock option exercise behaviors.
Option-pricing
models were developed for use in estimating the value of traded options that
have no vesting or hedging restrictions and are fully transferable. Because
(1) our employee stock options have certain characteristics that are
significantly different from traded options, and (2) changes in the
subjective assumptions can materially affect the estimated value, in
management’s opinion, the existing valuation models may not provide an accurate
measure of the fair value of our employee stock options. Although the fair
value
of employee stock options is determined in accordance with
SFAS No. 123R using a Black-Scholes option-pricing model, that value
may not be indicative of the fair value observed in a willing buyer/willing
seller market transaction. We are responsible for determining the assumptions
used in estimating the fair value of its share-based payment
awards.
Warrants
We
follow
the fair-value method of accounting for warrants issued to purchase our common
stock. The change of $8.6 million in the fair value of warrants issued in the
2006 Offering, arising from the amendment to the terms of the warrants in
connection with the settlement of the liability for liquidated damages, was
determined using a Black-Scholes warrant pricing model based on a 25% volatility
rate, which reflects a typical volatility rate used to value this type of
financial instrument.
New
Accounting Pronouncements
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.
31
In
September 2006, the FASB issued SFAS 157, Fair
Value Measurements. SFAS
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 provisions of SFAS 157 are to be applied
prospectively, except for the initial impact in certain situations, which are
required to be recorded as an adjustment to the opening balance of retained
earnings in the year of adoption. 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 SFAS No. 5, Accounting
for Contingencies.
This
FSP is effective for fiscal years beginning after December 15, 2006. We
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. For the year ended December 31, 2007, we expensed an
additional amount of $7,366,949. As at December 31, 2007, we had an accumulated
expense 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 SFAS 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”. SFAS 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. SFAS 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.
In
December 2007, the FASB issued SFAS 141 (R), “Business
Combinations”,
and
SFAS 160, “Noncontrolling
Interests in Consolidated Financial Statements”. SFAS 141
(R) requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquiree at their
fair values on the acquisition date, with goodwill being the excess value over
the net identifiable assets acquired. SFAS 160 clarifies that a
noncontrolling interest in a subsidiary should be reported as equity in the
consolidated financial statements. The calculation of earnings per share will
continue to be based on income amounts attributable to the parent. SFAS 141
(R) and SFAS 160 are effective for financial statements issued for
fiscal years beginning after December 15, 2008. Early adoption is
prohibited and the provisions are applied prospectively. We have not yet
determined the effect on our consolidated financial statements, if any, upon
adoption of SFAS 141 (R) or SFAS No. 160.
Summarized
Quarterly Financial Information
|
|
Revenue
and other Income
|
Expenses
|
Income
(Loss) Before Income Tax
|
Income
Tax
|
Net
Income (Loss)
|
Basic
and Diluted Earnings (Loss) Per Share
|
|||||||||||||
|
2007
|
|
|
|
|
|
|
|||||||||||||
|
First
Quarter
|
$
|
4,516,830
|
$
|
11,465,422
|
$
|
(6,948,592
|
)
|
$
|
(298,408
|
)
|
$
|
(6,650,184
|
)
|
$
|
(0.07
|
)
|
|||
|
Second
Quarter
|
3,749,734
|
9,998,110
|
(6,248,376
|
)
|
(1,176,292
|
)
|
(5,072,084
|
)
|
(0.05
|
)
|
|||||||||
|
Third
Quarter
|
8,038,730
|
7,458,251
|
580,479
|
(511,218
|
)
|
1,091,697
|
0.01
|
||||||||||||
|
Fourth
Quarter
|
15,972,860
|
11,528,808
|
4,444,052
|
2,280,685
|
2,163,367
|
0.02
|
|||||||||||||
|
|
$
|
32,278,154
|
$
|
40,450,591
|
$
|
(8,172,437
|
)
|
$
|
294,767
|
$
|
(8,467,204
|
)
|
$
|
(0.09
|
)
|
||||
|
2006
|
|||||||||||||||||||
|
First
Quarter
|
$
|
1,049,629
|
$
|
2,211,120
|
$
|
(1,161,491
|
)
|
$
|
57,457
|
$
|
(1,218,948
|
)
|
$
|
(0.03
|
)
|
||||
|
Second
Quarter
|
2,089,984
|
2,581,390
|
(491,406
|
)
|
80,326
|
(571,732
|
)
|
(0.01
|
)
|
||||||||||
|
Third
Quarter
|
5,415,124
|
4,771,059
|
644,065
|
710,417
|
(66,352
|
)
|
(0.00
|
)
|
|||||||||||
|
Fourth
Quarter
|
3,518,176
|
7,655,668
|
(4,137,492
|
)
|
(170,820
|
)
|
(3,966,672
|
)
|
(0.04
|
)
|
|||||||||
|
|
$
|
12,072,913
|
$
|
17,219,237
|
$
|
(5,146,324
|
)
|
$
|
677,380
|
$
|
(5,823,704
|
)
|
$
|
(0.08
|
)
|
||||
32
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.
Quantitative
and Qualitative Disclosure About Market Risk
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 December 31, 2007, the value of this
costless collar was a loss of $2,648,346. A hypothetical 10% increase in WTI
price on December 31, 2007 would cause the loss to increase by approximately
$1,475,168, and a hypothetical 10% decrease in WTI price on December 31, 2007
would cause the loss to decrease by approximately $1,258,675.
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. However, if we draw down amounts under our credit
facility with Standard Bank Plc, we will incur interest rate risk with respect
to the amounts drawn down and outstanding. 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.
33
BUSINESS
Gran
Tierra Energy Inc. and its subsidiaries (“Gran Tierra Energy”) is an independent
energy company engaged in oil and gas exploration, development and production.
We own oil and gas properties in Colombia, Argentina and Peru. A detailed
description of our properties can be found under “Properties”
below.
Our
principal executive offices are located at 300, 611-10th Avenue S.W., Calgary,
Alberta T2R 0B2, Canada. The telephone number at our principal executive office
is (403) 265-3221.
On
November 10, 2005, Goldstrike, Inc., a Nevada corporation (“Goldstrike”),
Gran Tierra Energy Inc., a privately-held Alberta corporation which we refer
to
as “Gran Tierra Canada” and the holders of Gran Tierra Canada’s capital stock
entered into a series of transactions pursuant to which Gran Tierra Canada
became a wholly-owned subsidiary of Goldstrike. Immediately following the
transactions Goldstrike changed its name to Gran Tierra Energy Inc. and
continued operations with the management and business operations of Gran Tierra
Canada, but remaining incorporated in the State of Nevada.
In
the
transactions between Goldstrike and the holders of Gran Tierra Canada common
stock, Gran Tierra Canada shareholders received, for their shares of Gran Tierra
Canada’s common stock: (a) exchangeable shares of a subsidiary of
Goldstrike, or (b) shares of Goldstrike common stock, or (c) a
combination of exchangeable shares and Goldstrike common stock. Each
exchangeable share 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 Energy for financial
accounting purposes. Accordingly, the historical financial statements of
Goldstrike before the share purchase and assignment transactions were replaced
with the historical financial statements of Gran Tierra Canada before the share
exchange in all subsequent filings with the SEC.
Goldstrike
was incorporated in the United States on June 6, 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. The former Gran Tierra Canada was formed by an
experienced management team with extensive experience in oil and natural gas
exploration and production in most of the world’s principal petroleum producing
regions.
The
Oil and Gas Business
In
the
discussion that follows, and in “Properties” below, we discuss our interests in
wells and/or acres in gross and net terms. Gross oil and natural gas wells
or
acres refers to the total number of wells or acres in which we own a working
interest. Net oil and natural gas wells or acres is determined by multiplying
gross wells or acres by the working interest that we own in such wells or acres.
Working interest refers to the interest we own in a property, which entitles
us
to receive a specified percentage of the proceeds of the sale of oil and natural
gas, and also requires us to bear the cost to explore for, develop and produce
such oil and natural gas. A working interest owner that owns a portion of the
working interest may participate either as operator or by voting his/her
percentage interest to approve or disapprove the appointment of an operator
and
drilling and other major activities in connection with the development of a
property.
We
also
refer to royalties and farm-in or farm-out transactions. Royalties are paid
to
governments on the production of oil and gas, either in kind or in cash.
Royalties also include overriding royalties paid to third parties. Our reserves,
production and sales are reported net after deduction of royalties. Farm-in
or
farm-out transactions refer to transactions in which a portion of a working
interest is sold by an owner of an oil and gas property. The transaction is
labeled a farm-in by the purchaser of the working interest and a farm-out by
the
seller of the working interest. Payment in a farm-in or farm-out transaction
can
be in cash or in-kind by committing to perform and/or pay for certain work
obligations.
Several
items that relate to oil and gas operations, specifically seismic operations,
are also discussed in this document. Seismic data is used by oil and natural
gas
companies as their principal source of information to locate oil and natural
gas
deposits, both for exploration for new deposits and to manage or enhance
production from known reservoirs. To gather seismic data, an energy source
is
used to send sound waves into the subsurface strata. These waves are reflected
back to the surface by underground formations, where they are detected by
geophones which digitize and record the reflected waves. Computers are then
used
to process the raw data to develop an image of underground formations. 2-D
Seismic is the standard acquisition technique used to image geologic formations
over a broad area. 2-D seismic data is collected by a single line of energy
sources which reflect seismic waves to a single line of geophones. When
processed, 2-D seismic data produces an image of a single vertical plane of
sub-surface data. 3-D seismic data is collected using a grid of energy sources,
which are generally spread over several miles. A 3-D survey produces a three
dimensional image of the subsurface geology by collecting seismic data along
parallel lines and creating a cube of information that can be divided into
various planes, thus improving visualization. Consequently, 3-D seismic data
is
generally considered a more reliable indicator of potential oil and natural
gas
reservoirs in the area evaluated.
34
Development
of Our Business
We
made
our initial acquisition of oil and gas producing and non-producing properties
in
Argentina in September 2005. During 2006, we acquired oil and gas producing
and non-producing assets in Colombia, non-producing assets in Peru and
additional properties in Argentina. As a result of these acquisitions we
hold:
|
·
|
1,191,498
gross acres in Colombia (935,953 net) covering
seven Exploration and Production
contracts and two Technical Evaluation Areas, three of which are
producing
and all are operated by Gran Tierra Energy;
|
|
·
|
1,906,418
gross acres (1,488,558 net) in Argentina covering eight Exploration
and
Production contracts, three of which are producing, and all but one
is
operated by Gran Tierra Energy; and
|
|
·
|
3,436,040
acres in Peru owned 100% by Gran Tierra Energy, which constitute
frontier
exploration, in two Exploration and Production contracts operated
by Gran
Tierra Energy.
|
In
Colombia in 2007, we drilled two discovery wells in the Putumayo Basin, the
Juanambu-1 well in the Guayuyaco Block and the Costayaco-1 well in the Chaza
Block. We also acquired 70 square kilometers of 3D seismic on the Chaza block,
and commenced drilling the Costayaco-2 well, which we completed drilling in
January 2008. We drilled four other wells, which were plugged and abandoned.
These wells were drilled with partners through various farm-out
arrangements,
and
three
of the wells were drilled at
no
cost to us. We were granted 100% interests in two Technical Evaluation Areas
in
Colombia in the Putumayo basin - Putumayo West A and Putumayo West B. Finally,
we engaged in farm-out activity on several of our exploration blocks, including
Mecaya, Rio Magdalena and Talora, and relinquished our interest in the Primavera
block.
Plans
for
2008 in Colombia focus on the development of the Costayaco discovery. Our plans
include drilling a total of six development wells at Costayaco in 2008,
including the completion of Costayaco-2 which began drilling in December 2007
and recently completed testing, and Costayaco-3 which entered the testing phase
in February, 2008. Along with our drilling operations, we plan to acquire 40
kilometers of 2D seismic on the Chaza block. Also in 2008 we plan to drill
one
additional development well on the Juanambu discovery, complete one workover
and
drill one exploration well on the Azar block, drill one exploration well on
the
Rio Magdalena block and proceed with seismic reprocessing, acquisition and
prospect generation on our other blocks and Technical Evaluation Areas. In
addition we will be developing production and transportation infrastructure
for
our producing properties.
In
Argentina in 2007, we completed drilling the Puesto
Climaco-2 sidetrack
well in the El Vinalar block. We also completed several workovers of existing
wells designed to maintain production in our other producing fields. In 2008,
we
plan to complete several workovers to maintain and/or increase production.
We
also plan to drill one exploration well on our Surubi block.
In
Peru,
we began acquisition of technical data in 2007 through an aero magnetic-gravity
survey, with completion anticipated in the first half of 2008. This will be
followed by seismic planning for the remainder of 2008, with acquisition of
seismic data planned for 2009.
Our
revenues and profit (loss) for each of the last three years, and our total
assets as of December 31, 2007, 2006 and 2005, are set forth under the heading
“Selected Financial Data” contained elsewhere in this prospectus, which
information is incorporated by reference here.
Business
Strategy
Our
plan
is to build an international oil and gas company through acquisition and
exploitation of opportunities in oil and natural gas exploration, development
and production. Our initial focus is in select countries in South America,
currently Argentina, Colombia and Peru.
We
are
applying a two-stage approach to growth, initially establishing a base of
production, development and exploration assets by selective acquisitions, and
secondly achieving future growth through drilling. We intend to duplicate this
business model in other areas as opportunities arise. We pursue opportunities
in
countries with prolific petroleum systems and attractive royalty, taxation
and
other fiscal terms. In the petroleum industry geologic settings with proven
petroleum source rocks, migration pathways, reservoir rocks and traps are
referred to as prolific petroleum systems.
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:
|
·
|
Position
in countries that are welcoming to foreign investment, that provide
attractive fiscal terms and/or offer opportunities that we believe
have
been previously ignored or
undervalued.
|
|
·
|
Build
a balanced portfolio of production, development and exploration assets
and
opportunities.
|
|
·
|
Engage
qualified, experienced and motivated
professionals.
|
35
|
·
|
Establish
an effective local presence.
|
|
·
|
Create
alliances with companies that are active in areas and countries of
interest, and consolidate initial land/property
positions.
|
|
·
|
Assess
and close opportunities
expeditiously.
|
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. An active market with many available deals is critical
to growing a portfolio efficiently and effectively so that we can capitalize
on
our capabilities today and into the future as we grow in scale and our needs
evolve.
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.
Markets
and Customers
Ecopetrol
S.A., or Ecopetrol, a government agency, is the purchaser of all crude oil
sold
in Colombia. We deliver our oil to Ecopetrol through our transportation
facilities which include pipelines, gathering systems and trucking. Oil from
our
discoveries at Juanambu and Costayaco is currently being trucked to an entry
point of our main pipeline, and construction is underway on gathering systems
and pipelines to replace the trucking, which will improve reliability and safety
of transportation, as well as increase capacity. The production from our other
properties is shipped via pipeline. Crude oil prices are defined by a multi-year
contract with Ecopetrol, based on West Texas Intermediate, or WTI, price less
adjustments for quality and transportation. Our oil in Colombia is good quality
light oil. We receive 25% of our revenue in Colombian pesos, and 75% of revenue
in US dollars. Sales to Ecopetrol accounted for 75% of our revenues in 2007,
56%
of our revenues in 2006, and 0% of our revenues in 2005.
In
accordance with our debt facility with Standard Bank PLC, we are required to
hedge a portion of production from our Colombian operations. We entered into
a
costless collar hedging contract 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
of
oil per day from March 2007 to December 2007, 300 barrels of oil per
day from January 2008 to December 2008, and 200 barrels of oil per day
from January 2009 to February 2010.
We
market
our own share of production in Argentina. The purchaser of all our oil in
Argentina is Refineria
del Norte S.A., or Refiner S.A.
Our oil
in Argentina is good quality light oil and the bulk of our production is
transported by pipeline and truck to Refiner S.A., although minor volumes of
natural gas and natural gas liquids are sold locally. In Argentina export prices
for crude oil are subject to an export tax based on WTI price. An amount
equivalent to the export tax is applied to domestic sales, which has the effect
of limiting the actual realized price for domestic sales. Our crude oil prices
are defined by a contract with Refiner S.A., based on WTI price less adjustments
for quality, transportation and an adjustment equivalent to the export tax.
We
receive revenues in Argentine pesos, based on US dollar prices with the exchange
rate fixed on the sales invoice date. Our current contract with Refiner S.A.
expired January 1, 2008; however, we are continuing sales of our oil under
oral
agreement with Refiner S.A. See “Negative
Economic, Political and Regulatory Developments in Argentina, Including Export
Controls May Negatively Affect our Operation” under
“Risk
Factors” for
a
description of the Argentine oil price situation.
Sales to Refiner accounted for 25% of our revenues in 2007, 44% of our revenues
in 2006, and 100% of our revenues in 2005.
There
were no sales in any other country other than Colombia and Argentina in 2007,
2006 and 2005.
See
“Our
Oil Sales Will Depend on a Relatively Small Group of Customers, Which Could
Adversely Affect Our Financial Results ”
and “Negative
Economic, Political and Regulatory Developments in Argentina, Including Export
Controls May Negatively Affect our Operations ”
in “Risk Factors” for a description of the risks faced by our dependency on a
small number of customers and the regulatory systems under which we
operate.
Competition
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,
and
we believe our technical and financial capabilities give us a competitive
advantage over these companies.
See
“Competition
in Obtaining Rights to Explore and Develop Oil and Gas Reserves and to Market
Our Production May Impair Our Business”
and
“Negative
Economic, Political and Regulatory Developments in Argentina, Including Export
Controls May Negatively Affect our Operations ”
in “Risk
Factors”
for
risks associated with competition.
36
Geographic
Information
Information
regarding our geographic segments, including information regarding revenues,
assets, expenses, income and operating income can be found in Note 4 Segment
and
Geographic Reporting of our Consolidated Financial Statements. Long lived assets
include Property, Plant and Equipment, which includes all oil and gas assets,
furniture and fixtures, automobiles and computer equipment. No long lived assets
are held in our country of domicile, which is the United States of America.
Corporate assets include assets held by our corporate head office in Calgary,
Alberta, Canada, and assets held in Peru.
Regulation
The
oil
and gas industry in Colombia, Argentina and Peru is heavily regulated. Rights
and obligations with regard to exploration, development 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.
Colombia
In
Colombia, state owned Ecopetrol is responsible for all activities related to
exploration, extraction, production, transportation, and marketing of oil for
export. Historically, all oil production was from concessions granted to foreign
operators or undertaken by Ecopetrol under Association Contracts or Shared
Risk
Contracts with foreign companies which generally provided Ecopetrol with back-in
rights, which allow for Ecopetrol to acquire a working interest share in any
commercial discovery by paying their share of the costs for that
discovery.
Effective
January 1, 2004, the regulatory regime in Colombia underwent a significant
change with the formation of the Agencia Nacional de Hidrocarbones or National
Hydrocarbons Agency, or 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. The
state
oil company, Ecopetrol, will maintain its exploration and production activities
across the country, but will become a more direct competitor in future
projects.
In
conjunction with this change, the ANH developed a new exploration risk contract
that took effect near the end of the first quarter of 2005. This Exploration
and
Exploitation Contract has significantly changed the way the industry views
Colombia. In place of the earlier association contracts in which the Ecopetrol
had an immediate back-in to production, the new agreement provides full
risk/reward benefits for the contractor. Under the terms of the contract the
successful operator retains the rights to all reserves, production and income
from any new exploration block, subject to existing royalty and income tax
regulations with a windfall profits tax provision for larger
fields.
Argentina
The
Hydrocarbons Law 17.319, enacted in June 1967, established the basic legal
framework for the current regulation of exploration and production of
hydrocarbons in Argentina. The Hydrocarbons Law empowers the National Executive
to establish a national policy for development of Argentina’s hydrocarbon
reserves, with the main purpose of satisfying domestic demand. However, on
January 5, 2007, Hydrocarbon Law 26.197 was passed by the Government of
Argentina. This new legal framework replaces article one of the Hydrocarbons
Law
17.319 and provides for the provinces to assume complete ownership, authority
and administration of the crude oil and natural gas reserves located within
their territories, including offshore areas up to 12 marine miles from the
coast
line. This includes all exploration, exploitation and transportation
concessions.
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.
Recently
the Argentine government has issued decrees changing the withholding tax
structure and further regulating oil exports. The effects on Gran Tierra Energy
are noted under the heading “Risk Factors” contained elsewhere in this
prospectus.
Peru
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.
37
See
“Risk
Factors” for information regarding the regulatory risks that we
face.
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, facilities, including the operation and construction of pipelines,
plants and other facilities for transporting, processing, treating or storing
crude oil and other products, are subject to stringent environmental regulation
by provincial and federal authorities in Colombia, Argentina and Peru.
Such
regulations relate to environmental impact studies, permissible levels of air
and water emissions, control of hazardous wastes, construction of facilities,
recycling requirements, reclamation standards, among others. Risks
are
inherent in oil and gas exploration, development and production operations,
and
we can give no assurance that significant costs and liabilities will not be
incurred in connection with environmental compliance issues. There
can
be no assurance that all licenses and permits which we may require to carry
out
exploration and production activities will be obtainable on reasonable terms
or
on a timely basis, or that such laws and regulations would not have an adverse
effect on any project that we may wish to undertake.
In
2007,
we experienced a limited number of environmental incidents and enacted many
environmental initiatives as follows:
In
Colombia, we resolved water contamination issues on our Santana block, and
passed government inspection on December 6, 2007. We also dealt with three
minor
incidents on the Santana block, which caused spilled oil and ground water
contamination and a loss to Gran Tierra Energy of approximately 220 barrels
of
oil. Our pipeline from Miraflor to Santana had several incidents of theft which
resulted in minor environmental damage, which was cleaned up and remediated
by
Gran Tierra Energy. The pipeline incidents caused a loss of approximately 4,166
barrels of oil, net to Gran Tierra Energy. The total cost to Gran Tierra Energy
of these incidents was approximately $310,000.
In
Argentina, we had one spill of 115 barrels of diesel caused by operator error
at
our El Vinalar field loading station. The affected area was cleaned,
contaminated soil removed and a retaining wall erected around the loading point.
Initiatives
enacted in 2007 included implementation of our Corporate Health, Safety and
Environment Management System and Environmental Best Practices. We have an
environmental risk management program in place as well as a waste management
system. Air and water testing occur regularly, and environmental contingency
plans have been prepared for all sites and ground transportation of crude oil.
We conducted an internal audit of environmental procedures in December
2007.
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.
In
Peru,
we will conduct an Environmental Impact Assessment, or EIA, on each of our
blocks. We expect the costs for 2008 for these EIAs to be approximately $250,000
each.
We
will
continue compliance with all environmental and pollution control laws and
regulations in Colombia, Argentina and Peru. We plan to continue enacting
environmental, health and safety initiatives in order to minimize our
environmental impact and expenses. We also plan to continue and improve internal
audit procedures and practices in order to monitor current performance and
search for improvement.
We
expect
the cost of compliance
with Federal, State and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment for the rest of operations will
not be material to our company.
Employees
At
December 31, 2007, we had 126 full-time employees — 10 located in the
Calgary corporate office, 28 in Buenos Aires (15 office staff and 13 field
personnel) and 88 in Colombia (24 staff in Bogota and 64 field personnel).
None
of our employees are represented by labor unions, and we consider our employee
relations to be good.
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 SEC’s 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
.
38
Legal
Proceedings
Ecopetrol
and Gran Tierra Colombia, 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. There is 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 extended test production up to a value equal to 30% of the direct
exploration costs of the wells is for Ecopetrol’s account only and serves as
reimbursement of its 30% back-in to the Guayuyaco discovery. Gran Tierra
Colombia’s 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. There has been no agreement between the parties, and Ecopetrol
has filed a lawsuit in the Contravention Administrative Court in the District
of Cauca regarding this matter. At this time no amount has been accrued in
the financial statements as we do not consider it probable that a loss will
be
incurred. Ecopetrol is claiming damages of approximately $5.8 million, which
possible loss is shared 50% with our partner Solana Petroleum Exploration
(Colombia) S.A., with the remaining 50% the responsibility of Gran Tierra
Colombia. To our knowledge, no other proceeding against us is currently
contemplated by any governmental authority.
Properties
Offices
We
currently lease office space in Calgary, Alberta; Buenos Aires, Argentina;
and
Bogota, Colombia. The two Calgary leases expire January 31, 2011 and
January 31, 2013 and cost $12,386 per month and $6,684 per month respectively.
Our two Buenos Aires, Argentina leases expire January 31, 2009 and July 15,
2009
and cost $2,117 per month and $2,467 per month respectively. Of our three
Bogota, Colombia leases, two will expire on March 31, 2009 and December 2010,
respectively, and one has expired as of February 29, 2008, with costs of $794,
$30,321 and $2,774 per month respectively. The expired lease will not be
replaced as the space is replaced by the lease that expires December 2010.
The
properties remaining on lease are in excellent condition, and we believe that
they are sufficient for our office needs for the foreseeable future.
39
Oil
and Gas Properties-Colombia
In
June 2006, we purchased Argosy Energy International L.P. (“Argosy”) which
was subsequently renamed Gran Tierra Energy Colombia Ltd. Argosy had interests
in seven Exploration and Production contracts at that time, including Santana,
Guayuyaco, Chaza and Mecaya in the Putumayo basin; Talora and Rio Magdalena
in
the Magdalena basin; and Primavera in the Llanos basin. The acquisition price
included overriding royalty rights and net profits interests in the blocks
that
were owned by Argosy at the time of the acquisition. The Azar block in the
Putumayo basin was acquired later in 2006, and the Putumayo Technical Evaluation
Areas in the Putumayo basin were acquired in 2007. We relinquished the Primavera
block in 2007.
Currently,
the Guayuyaco, Santana and Chaza blocks are producing oil. Oil prices are
defined by contract and are related to a WTI reference price. By contract,
25%
of sales are denominated in Colombian pesos and 75% in US dollars. Oil is sold
to Ecopetrol and is exported via the Trans-Andean pipeline.
Santana
The
Santana block covers 1,119 acres and includes 15 producing wells in 4 fields
—
Linda, Mary, Miraflor and Toroyaco. Activities are governed by terms of a Shared
Risk 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, Inchiyaco, where we hold a
25.83% working interest, and a third party holds a 9.17% interest. Ecopetrol
holds the remaining interest. The block has been producing since 1991. Under
the
Shared Risk Contract, Ecopetrol initially backed in to a 50% interest upon
declaration of commerciality in 1991. In June 1996, when the field reached
7
million barrels of oil produced, Ecopetrol had the right to back into a further
15%, which it took, for a total ownership of 65%.
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 performed remedial work on various wells and upgraded the Mary field water
processing facility. For 2008, we will continue with regular field
maintenance.
40
Guayuyaco
The
Guayuyaco block covers 52,366 acres and includes the area surrounding the four
producing fields of the Santana contract area. The Guayuyaco block is governed
by an Association Contract with Ecopetrol, resulting in a base royalty of 8%,
for production of less than 5,000 barrels of oil per day. The royalty increases
in a linear fashion to 20% for production between 5,000 and 125,000 barrels
of
oil per day, and is stable at 20% up to production of 400,000 barrels of oil
per
day. For production between 400,000 and 600,000 barrels of oil per day the
rate
increases again to a maximum of 25%. We are the operator and have a 35%
participation interest, and our partners are a third party (35%) and Ecopetrol
(30%). 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. 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 expired in 2005 and the production phase expires in 2027.
We have completed all of our obligations in relation to the exploration phase
of
the contract. In March 2007, we completed drilling the Juanambu-1
exploration well and testing was completed in May 2007. Pre-commercial
production began in June 2007. Ecopetrol has backed-in with a 30% participation
interest in the discovery, leaving us with a 35% participation interest.
Commerciality was granted by Ecopetrol on November 8, 2007. The property will
be
returned to the government upon expiration of the production contract. As a
result, there will be no reclamation costs.
In
2008
we plan to drill a second well on the Juanambu discovery, as well as upgrade
facilities and acquire 20 kilometers of 3D seismic, which also extends into
the
Chaza block.
Rio
Magdalena
Argosy
entered into the Rio Magdalena Association Contract with Ecopetrol in
February 2002. The Rio Magdalena block covers 144,670 acres and is located
approximately 75 kilometers west of Bogota, Colombia. This is an exploration
block and there are no reserves at this time. We are the operator of the block.
According to the terms of the exploration contract, we were 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 the well was subsequently plugged and abandoned in
February 2007. We have entered the final exploration phase, which expired
February 7, 2008. The contract provides for a 60 day grace period from the
date of expiry of the exploration phase in order to remedy any incomplete work
commitments. One additional exploration well is planned in satisfaction of
our
commitment for the final exploration phase. 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.
We
entered into a commercial agreement with a third party on January 9, 2008
whereby the third party will fund 100% of the additional exploration well,
to
earn a 60% working interest in the block. The third party will only earn their
60% interest once the obligation to fully fund the exploration well is
completed. We will remain operator of the property.
According
to the terms of the Association Contract, Ecopetrol may back-in for a 30%
participation interest upon commercialization, and a sliding scale royalty
will
apply. The base royalty rate is currently 8%, for production less than 5,000
barrels of oil per day, and follows the same sliding scale progression as the
Guayuyaco block royalty rates.
Chaza
The
Chaza
block covers 80,242 acres and is governed by the terms of an Exploration and
Exploitation Contract with the government agency ANH. We are the operator and
hold a 50% participation interest. The discovery of the Costayaco field in
the
Chaza Block was the result of drilling the Costayaco-1 exploration well in
the
second quarter of 2007. This well commenced production in July, 2007. We
completed drilling the Costayaco-2 development well on January 2, 2008, and
completed casing on January 8, 2008. This well encountered the same reservoir
sequences with similar good oil and gas shows as Costayaco-1. Testing of the
Costayaco-2 well was completed in February, 2008 and the well bore is currently
being completed for production. We commenced drilling Costayaco-3 in January
2008, and completed drilling on February 20, 2008. Costayaco-3 is currently
being tested. Four further development wells are planned for 2008, along with
facilities and pipeline expansion and 20 kilometers of 3D seismic, which is
an
extension of the 3D seismic planned for the Guayuyaco block.
The
contract for this field expires in two phases. The exploration phase expires
in
2011 and the production phase ends in 2032. The property will be returned to
the
government upon expiration of the production contract. Within sixty days
following the date of the return of the property, we must carry out an
abandonment program to the satisfaction of ANH. In conjunction with the
abandonment, we must establish and maintain an abandonment fund to ensure that
financial resources are available at the end of the contract. The base royalty
rate is currently 8%, for production less than 5,000 barrels of oil per day,
and
follows the same sliding scale progression as the Guayuyaco block royalty
rates.
41
Talora
We
currently hold a 20% working interest and are the operator for the Talora block.
The Exploration and Exploitation Contract associated with the block was
originally signed in September 2004, providing for a six year
exploration period and 24 year production period. The Talora contract area
covers 108,334 acres and is located approximately 75 kilometers west of Bogota,
Colombia. This is an exploration block and there are currently no reserves.
We
commenced drilling the Laura-1 exploration well on December 27, 2006, at no
cost to us, 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 December 15, 2006, and which contained a
60 day grace period to remedy incomplete work commitments. The third exploration
phase has begun and we have a commitment to drill one well. We entered into
a
commercial agreement with a third party on December 27, 2007, whereby the third
party will pay 100% of our 20% interest in the next exploration well drilled
on
Talora, in 2008. Once this obligation is fulfilled, we will apply to ANH to
have
our entire 20% interest in the Talora block assigned to the third party. The
property will be returned to the government upon expiration of the production
contract.
Primavera
The
Primavera Exploration and Exploitation contract was signed May 2006. The
Primavera contract area covers 359,064 acres in the Llanos basin. We were the
operator and had a 15% participation interest. Chaco Resources also had a 55%
participation interest. In 2007, we drilled two wells in the Primavera area
at
no cost to us. Both wells were dry and were plugged and abandoned. Along with
our partners in the field, we decided to relinquish the contract. We have no
further obligations in relation to this contract.
Mecaya
The
Mecaya Exploration and Exploitation contract was signed June 2006. The
Mecaya contract area covers 74,128 acres in southern Colombia, about 150
kilometers southeast of Pasto. We are the operator and currently have a 15%
participation interest. The first phase was scheduled to expire June 2007;
however, we received a 6 months extension due to extensive consultation required
with the local indigenous population. We are currently applying to ANH to have
the period extended again, as guerilla activities in the area have prevented
us
from meeting exploration commitments by the new December, 2007 deadline. On
December 27, 2007, we entered into a commercial agreement with a third party
whereby the third party will pay us $1,475,000 upon our receipt of an extended
work term for the first phase of exploration. Once payment has been received,
we
will apply to ANH to have our entire 15% interest assigned to the third party.
Work plans include 2-D seismic and reprocessing, road construction and
re-completion of the existing Mecaya-1 well bore. Seismic acquisition began
in
mid February, 2008. Phase two of the exploration contract expires in 2010.
The
exploitation phase for this contract expires 24 years after commerciality is
approved. The property will be returned to the government upon expiration of
the
production contract.
Azar
We
acquired an 80% interest in the Azar property through a farm-in in late 2006,
and were obliged to pay the original owner’s 20% share of future costs, as well
as our own 80% share. In mid-2007 we farmed out 50% of our interest to a third
party. The third party will pay 100% of our 80% share of exploration and
development costs for the first three phases of the exploration contract, and
we
are obliged to pay 20% of costs under our farm-in agreement. This exploration
block covers 51,639 acres. We acquired 40 square kilometers of 3-D seismic
at
the end of 2007 and beginning of 2008 to assess exploitation opportunities.
In
2008 we will drill one well on the property. The exploration contract expires
in
2012 for this property. The exploitation phase expires 24 years after
commerciality is approved. The property will be returned to the government
upon
expiration of the production contract. If we make a commercial discovery on
the
block, and produce oil, we will be obligated to perform abandonment activities,
under the same conditions as those for the Chaza block.
Putumayo
A&B Technical Evaluation Areas
We
were
awarded two Technical Evaluation Areas in the Putumayo Basin in southern
Colombia in June 2007. The two Technical Evaluation Areas are located near
the
Orito Field, the largest oil field in the Putumayo Basin.
Putumayo
West A covers an area of 230,671 hectares (570,000 acres) and is held 100%
by
Gran Tierra. The evaluation period is 12 months, expiring August 28, 2008.
During this time, we have an obligation to conduct 400 kilometres of seismic
reprocessing and geologic studies. We will have a preferential right to apply
for an Exploration and Exploitation contract in the area during the evaluation
stage and match or improve any bid by third parties to convert all or a portion
of the Technical Evaluation Area to an exploration license.
Putumayo
West B covers an area of 44,111 hectares (109,000 acres) and is held 100% by
Gran Tierra. The evaluation period is for 11 months. During this time, we have
an obligation to conduct 100 kilometres of seismic reprocessing and geologic
studies. We have begun negotiations to convert this Technical Evaluation
Agreement to an Exploration and Exploitation contract in the area. If
negotiations are successful, the Technical Evaluation Area will be converted
to
an Exploration and Exploitation contract through the ANH, and the retained
acreage would be subject to the new ANH royalty/tax terms which include no
additional state participation.
42
Oil
and Gas Properties-Argentina
In
September 2005, we entered Argentina through the acquisition of a 14% interest
in the Palmar Largo joint venture, and a 50% interest in each of the Nacatimbay
and Ipaguazu blocks. In 2006, we purchased further properties in Argentina,
including the remaining 50% interest in Nacatimbay and Ipaguzau, a 50% interest
in El Vinalar and 100% interests in El Chivil, Valle Morado, Surubi and Santa
Victoria. Our Argentina properties are located in the Noroeste Basin in northern
Argentina.
Palmar
Largo
The
Palmar Largo joint venture block encompasses 341,500 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,
which we purchased in September 2005. A total of 14 gross wells are currently
producing. We produce good quality light oil from this field.
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.
Our
work
program for 2008 involves optimization of well performance and operating
expenses to maximize net revenues from the property.
Nacatimbay
We
acquired a 100% working interest in the Nacatimbay block through two
transactions. We purchased a 50% working interest in September 2005 and we
purchased the remaining 50% working interest in November 2006. Production
from the Nacatimbay oil, gas and condensate field began in 1996. Three wells
were drilled and one was producing until February 28, 2006, when its production
was suspended due to low flow conditions. In October 2006, the suspended
well was reactivated after surface facilities were upgraded and it produced
for
two additional months in 2006 and three months of 2007 and is currently
shut-in. We continued to explore ways to optimize production in
this field during 2007 and explored opportunities to re-enter the Nacatimbay
1001 well.
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.
43
Ipaguazu
We
acquired a 100% working interest in the Ipaguazu block through two transactions.
We purchased a 50% working interest in September 2005 and we purchased the
remaining 50% working interest in November 2006. 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. No producing activities
are carried out in the field at this time. The Ipaguazu block covers 43,243
acres and has not been fully appraised, leaving scope for both reactivation
and
exploration in the future. 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. In 2008, we plan to assess
the
possibility of a workover on the Ipaguazu X-1 well.
El
Vinalar
We
acquired a 50% working interest in the El Vinalar Block in June 2006. This
acquisition added a significant new land position and a small amount of
production. El Vinalar covers 248,341 acres and contains a portfolio of
exploration leads and oil field enhancement opportunities. The Puesto Climaco-2
sidetrack well was successfully completed in December 2006, and began
producing in January 2007.
Plans
for
2008 include workovers of three wells - Puesto Climaco 3, Puesto Climaco 1
and
El Vinalar 2.
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.
El
Chivil, Surubi, Valle Morado, Santa Victoria
We
purchased working interests in four additional properties at Chivil, Surubi,
Valle Morado and Santa Victoria, in November and December 2006. These properties
added to our existing portfolio of exploration and development opportunities
and
expanded our production base in Argentina. Farm-in partners are being sought
to
participate in drilling one exploration well on the Surubi block in 2008.
|
·
|
The
Chivil field was discovered in 1987. Three wells were drilled; two
remain
in production. The field has produced 1.5 million barrels of oil to
date. The contract for this field expires in 2015 with the option
for a
ten year extension.
|
|
·
|
Valle
Morado was first drilled in 1989. Rights to the area were purchased
by
Shell in 1998, which 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.
|
|
·
|
Surubi
and Santa Victoria are exploration fields and have no production
history.
|
Oil
and Gas Properties — Peru
We
entered the Peruvian oil and gas industry in 2006 through the award of two
frontier exploration blocks.
44
Blocks
122 and 128
We
were
awarded two exploration blocks in Peru in the last quarter of 2006 under a
license contract for the exploration and exploitation of hydrocarbons. Block
122
covers 1,217,651 acres and block 128 covers 2,218,389 acres. The blocks are
located in the eastern flank of the Maranon Basin in northern Peru, on the
crest
of the Iquitos Arch. There is a 5-20%, sliding scale, royalty rate on the lands,
dependent on production levels. Production less than 5,000 barrels of oil per
day attracts a royalty of 5%, for production between 5,000 and 100,000 barrels
of oil per day there is a linear sliding scale between 5% and 20%. Production
over 100,000 barrels per day has a royalty of 20%. 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
through aero magnetic-gravity studies began in 2007, and is continuing through
the first half of 2008. This will be followed by seismic planning work in 2008
and seismic acquisition 2009. The production contract expires in
2037.
Proved
Reserves
No
estimates of proved reserves comparable to those included herein have been
included in a report to any federal agency other than the SEC.
The
process of estimating oil and gas reserves is complex and requires significant
judgment, as discussed in “Risk Factors”. As a result we have developed internal
policies for estimating and evaluating reserves, and 100% of our reserves are
audited by an independent reservoir engineering firm at least
annually.
The
SEC
definition of proved oil and natural gas reserves, per Regulation S-X, is
as follows:
|
·
|
Proved
oil and natural gas reserves. Proved
oil and natural gas reserves are the estimated quantities of crude
oil,
natural gas, and natural gas liquids which geological and engineering
data
demonstrate with reasonable certainty to be recoverable in future
years
from known reservoirs under existing economic and operating conditions,
i.e., prices and costs as of the date the estimate is made as defined
in
Rule 4-10(a)(2). Prices include consideration of changes in existing
prices provided only by contractual arrangements, but not on escalations
based upon future conditions.
|
|
a)
|
Reservoirs
are considered proved if economic producibility is supported by either
actual production or conclusive formation test. The area of a reservoir
considered proved includes (1) that portion delineated by drilling
and defined by gas-oil and/or oil-water contacts, if any; and (2) the
immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on
fluid
contacts, the lowest known structural occurrence of hydrocarbons
controls
the lower proved limit of the
reservoir.
|
|
b)
|
Reserves
which can be produced economically through application of improved
recovery techniques (such as fluid injection) are included in the
proved
classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support
for
the engineering analysis on which the project or program was
based.
|
|
c)
|
Estimates
of proved reserves do not include the following: (1) oil that may
become available from known reservoirs but is classified separately
as
“indicated additional reserves”; (2) crude oil, natural gas, and
natural gas liquids, the recovery of which is subject to reasonable
doubt
because of uncertainty as to geology, reservoir characteristics,
or
economic factors; (3) crude oil, natural gas, and natural gas
liquids, that may occur in undrilled prospects; and (4) crude oil,
natural gas, and natural gas liquids, that may be recovered from
oil
shales, coal, gilsonite and other such
sources.
|
|
·
|
Proved
developed reserves —
Proved reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods as defined in
Rule 4-10(a)(3).
|
Proved
undeveloped reserves —
Proved reserves that are expected to be recovered from new wells on undrilled
acreage, or from existing wells where a relatively major expenditure is required
as defined in Rule 4-10(a)(4).
45
The
following table sets forth our proved reserves net of all royalties and third
party interests as of December 31, 2007. (all quantities in thousands of barrels
of oil)
|
Proved
|
Proved
|
Total
|
Proved
|
||||||||||
|
Developed
|
Undeveloped
|
Proved
|
Reserves
|
||||||||||
|
Reserves
|
Reserves
|
Reserves
|
%
|
||||||||||
|
Colombia
|
|
|
|
||||||||||
|
Santana
|
661
|
-
|
661
|
10.3
|
%
|
||||||||
|
Guayuyaco
|
212
|
-
|
212
|
3.3
|
%
|
||||||||
|
Juanambu
|
206
|
-
|
206
|
3.2
|
%
|
||||||||
|
Costayaco
|
2,365
|
905
|
3,270
|
51.0
|
%
|
||||||||
|
Mecaya
|
-
|
34
|
34
|
0.5
|
%
|
||||||||
|
Total
Colombia
|
3,444
|
939
|
4,383
|
68.3
|
%
|
||||||||
|
Argentina
|
|||||||||||||
|
Palmar
Largo
|
381
|
35
|
416
|
6.5
|
%
|
||||||||
|
El
Chivil
|
622
|
181
|
803
|
12.5
|
%
|
||||||||
|
Ipaguazu
|
296
|
-
|
296
|
4.6
|
%
|
||||||||
|
El
Vinalar
|
520
|
520
|
8.1
|
%
|
|||||||||
|
Nacatimbay
|
-
|
-
|
-
|
0.0
|
%
|
||||||||
|
Valle
Morado
|
-
|
-
|
-
|
0.0
|
%
|
||||||||
|
Total
Argentina
|
1.819
|
216
|
2,035
|
31.7
|
%
|
||||||||
|
Peru
|
-
|
-
|
-
|
-
|
|||||||||
|
Total
|
5,263
|
1,155
|
6,418
|
100.0
|
%
|
||||||||
Our
proved developed reserves set forth in the previous table, totaling 5.3 million
barrels of oil as at December 31, 2007, consist of proved developed producing
reserves and proved developed non-producing reserves. The following table
provides additional information regarding our proved developed reserves at
December 31, 2007. (all quantities in thousands of barrels of oil)
|
Proved
|
Proved
|
Total
|
||||||||
|
Developed
|
Developed
|
Proved
Developed
|
||||||||
|
Producing
|
Non-Producing
|
Reserves
|
||||||||
|
Colombia
|
|
|
|
|||||||
|
Santana
|
609
|
52
|
661
|
|||||||
|
Guayuyaco
|
158
|
54
|
212
|
|||||||
|
Juanambu
|
186
|
20
|
206
|
|||||||
|
Costayaco
|
1,192
|
1,173
|
2,365
|
|||||||
|
Mecaya
|
-
|
-
|
-
|
|||||||
|
Total
Colombia
|
2,145
|
1,299
|
3,444
|
|||||||
|
Argentina
|
||||||||||
|
Palmar
Largo
|
381
|
-
|
381
|
|||||||
|
El
Chivil
|
261
|
361
|
622
|
|||||||
|
Ipaguazu
|
-
|
296
|
296
|
|||||||
|
El
Vinalar
|
334
|
186
|
520
|
|||||||
|
Nacatimbay
|
-
|
-
|
-
|
|||||||
|
Valle
Morado
|
-
|
-
|
-
|
|||||||
|
Total
Argentina
|
976
|
843
|
1,819
|
|||||||
|
Total
Peru
|
-
|
-
|
-
|
|||||||
|
Total
|
3,121
|
2,142
|
5,263
|
|||||||
Production
Revenue and Price History
Certain
information concerning oil and natural gas production, prices, revenues (net
of
all royalties) and operating expenses for the three years ended December 31,
2007 is set forth in this prospectus under “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”.
46
Drilling
Activities
The
following table summarizes the results of our development and exploration
drilling activity for the past three years. Wells labeled as “In Progress”, were
in progress as of December 31, 2007.
|
2007
|
2006
|
2005
|
|||||||||||||||||
|
Gross
|
Net
|
Gross
|
Net
|
Gross
|
Net
|
||||||||||||||
|
Colombia
|
|
|
|||||||||||||||||
|
Exploration
|
|
|
|||||||||||||||||
|
Productive
|
2.00
|
0.85
|
-
|
-
|
1.00
|
0.35
|
|||||||||||||
|
Dry
|
4.00
|
1.50
|
1.00
|
1.00
|
|||||||||||||||
|
In
Progress
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Development
|
|||||||||||||||||||
|
Productive
|
-
|
-
|
-
|
-
|
1.00
|
0.35
|
|||||||||||||
|
Dry
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
In
Progress
|
1.00
|
0.50
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Total
Colombia
|
7.00
|
2.85
|
1.00
|
1.00
|
2.00
|
0.70
|
|||||||||||||
|
Argentina
|
|||||||||||||||||||
|
Exploration
|
|||||||||||||||||||
|
Productive
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Dry
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
In
Progress
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Development
|
|||||||||||||||||||
|
Productive
|
1.00
|
0.50
|
1.00
|
0.14
|
1.00
|
0.14
|
|||||||||||||
|
Dry
|
-
|
-
|
|||||||||||||||||
|
In
Progress
|
-
|
-
|
|||||||||||||||||
|
Total
Argentina
|
1.00
|
0.50
|
1.00
|
0.14
|
1.00
|
0.14
|
|||||||||||||
|
Peru
|
|||||||||||||||||||
|
Exploration
|
|||||||||||||||||||
|
Productive
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Dry
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
In
Progress
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Development
|
|||||||||||||||||||
|
Productive
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Dry
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
In
Progress
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Total
Peru
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Total
|
8.00
|
3.35
|
2.00
|
1.14
|
3.00
|
0.84
|
|||||||||||||
Following
are the results as of February 15, 2008 of wells in progress at December 31,
2007:
|
Productive
|
Dry
|
Still
in Progress
|
|||||||||||||||||
|
Gross
|
Net
|
Gross
|
Net
|
Gross
|
Net
|
||||||||||||||
|
Colombia
|
1.00
|
0.50
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Argentina
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Peru
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Total
|
1.00
|
0.50
|
|||||||||||||||||
Well
Statistics
The
following table sets forth our producing wells as of December 31,
2007.
|
Oil
Wells
|
Gas
Wells
|
Total
Wells
|
|||||||||||||||||
|
Gross
|
Net
|
Gross
|
Net
|
Gross
|
Net
|
||||||||||||||
|
Colombia
|
19.00
|
6.71
|
-
|
-
|
19.00
|
6.71
|
|||||||||||||
|
Argentina
|
18.00
|
4.96
|
1.00
|
1.00
|
19.00
|
5.96
|
|||||||||||||
|
Peru
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Total
|
37.00
|
11.67
|
1.00
|
1.00
|
38.00
|
12.67
|
|||||||||||||
47
Developed
and Undeveloped Acreage
The
following table sets forth our developed and undeveloped oil and gas lease
and
mineral acreage as of December 31, 2007.
|
Developed
|
Undeveloped
|
Total
|
|||||||||||||||||
|
Gross
|
Net
|
Gross
|
Net
|
Gross
|
Net
|
||||||||||||||
|
Colombia
|
53,485
|
18,720
|
1,138,013
|
917,233
|
1,191,498
|
935,953
|
|||||||||||||
|
Argentina1
|
782,089
|
364,228
|
1,124,330
|
1,124,330
|
1,906,418
|
1,488,558
|
|||||||||||||
|
Peru
|
-
|
-
|
3,436,040
|
3,436,040
|
3,436,040
|
3,436,040
|
|||||||||||||
|
Total
|
835,574
|
382,948
|
5,698,383
|
5,477,603
|
6,533,956
|
5,860,551
|
|||||||||||||
1
Effective
January 1, 2008, we relinquished a total of 271,721 acres in Argentina within
existing blocks. No blocks were relinquished in their entirety.
48
MANAGEMENT
Executive
Officers and Directors
Set
forth
below is information regarding our directors, executive officers and key
personnel as of April 1, 2008.
|
|
|
|
|
|
|
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
|
|
64
|
|
Director
|
|
Nicholas
G. Kirton
|
|
63
|
|
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 America’s 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 EnCana’s 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 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
Nexen’s Yemen operations and six years in Nexen’s 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.
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.
49
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 Energy’s 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 Bachelor’s 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., Essential Energy Services Trust, and Galena
Capital Corporation 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.
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.
Computalog’s 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 Suroco Energy, Fort Chicago Energy Partners
LP, Harvest Energy Trust, and Builders Energy Services Trust, 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.
Nicholas
G. Kirton, Director. Mr.
Kirton has served as
a director since March 27, 2008. Mr.
Kirton is a Chartered Accountant and former
KPMG partner who
retired after a thirty-eight year career at KPMG. He currently sits on the
boards of directors of Canexus Income Fund, Innicor Subsurface Technologies
Inc., Result Energy Inc., and MacLeod Resources Limited (private
corporation). In addition, he is a member of the Board of Governors of the
University of Calgary and is a member of the Education and Qualifications
Committee of the Canadian Institute of Chartered Accountants.
Mr.
Kirton received a Bachelor of Science (Mathematics and Physics) in 1966 from
Bishop's University, his Chartered Accountant designation in Quebec in 1969
and
was named a Fellow of the Institute of Chartered Accountants (FCA) in Alberta
in
1996, and in 2006 received the designation of ICD.D from the Institute of
Corporate Directors.
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.
50
Our
board
of directors consists of five directors and includes four committees: an audit
committee, a compensation committee, a nominating and corporate governance
committee and a reserves 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 five directors, Messrs. Scott, Johnson, Dawson
and Kirton, are “independent” within the meaning of Rule 4200(a)(15) of the
NASD’s 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$0.9881, for discussion of 2008 salary and 2007 bonus
amounts which was the conversion rate at December 31, 2007, and one
Canadian dollar to US$0.8581 for discussion of 2007 salary and 2006 bonus
amounts, which was 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 Officer’s 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. Prior to 2007, our compensation practices were
largely discretionary. During 2007, we have adopted an increasingly formalized
framework whereby our Compensation Committee has defined items of corporate
performance to be considered in future compensation, which include budget
targets (production, reserves, capital expenditures, operating costs), and
which
it expects will include financial measures (e.g., liquidity) and share price
performance, in addition to other objectives. Our Compensation Committee has
defined elements of personal performance to be met by the achievement of agreed
objectives. This process was initiated by the Chief Executive Officer, whose
objectives have been documented and accepted by the board of directors.
Objectives for the remaining executives are within the context of the Chief
Executive Officer’s objectives and include other, more specific
goals.
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 executives. 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 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.
In
2007, the company subscribed to the “2007 Mercer Total Compensation Survey for
the Petroleum Industry” in order to provide information for 2008 salaries and
2007 bonuses.
51
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 were 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. Eden’s 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.
James
Hart, our previous Chief Financial Officer, continued as an employee in the
capacity of Chief Strategy Officer until February 28, 2007. After his
resignation as an employee, he continued with the company as a director until
October 10, 2007, at which time he resigned his directorship.
Base
salaries for 2008 will be as follows:
| Mr. Coffield | — | $ | 261,847 | ||||
| Mr. Eden | — | $ | 233,439 | ||||
| Mr. Wei | — | $ | 216,809 | ||||
| Mr. Orunesu | — | $ | 207,000 | ||||
| Mr. Dyes | — | $ | 220,000 |
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 were as follows:
| Mr. Coffield | — | $ | 214,525 | ||||
| Mr. Hart | — | $ | 193,073 | ||||
| Mr. Wei | — | $ | 171,620 | ||||
| Mr. Orunesu | — | $ | 180,000 | ||||
| Mr. Dyes | — | $ | 180,000 | ||||
| Mr. Eden | — | $ | 193,073 |
Base
salaries were determined by our Compensation Committee based upon its review
of
the Mercer survey, targeting the 50th—70th percentile as being appropriate to
retain the services of our executives, the exact amount determined by the
Compensation Committee’s subjective assessment of the appropriate salary for
each executive given their performance and roles within our
company.
52
Bonus
In
2006,
our Compensation Committee used the Mercer survey to establish bonuses for
our
executives. In doing so, the Compensation Committee targeted the 50
th
—
75
th
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 company’s operational and
financial results, and our financial resources, taken as a whole.
Target
bonuses for 2007 for our executive officers were not established. For 2007,
our
Compensation Committee used the 2007 Mercer survey to establish the level of
bonuses for our executives. The Compensation Committee again targeted the
50
th
—
75
th
percentile for the position within the peer group for the industry as being
appropriate to retain the services of our executives. The Compensation Committee
determined bonuses for our executives based on assessment of performance against
individual objectives for 2007, in addition to consideration of our company’s
operational and financial results, and our financial
resources.
The
weighting of all of the individual performance objectives and the percentage
contribution of the individual performance objectives was assessed by the
Compensation Committee in determining bonuses.
Individual
objectives defined for 2007 were 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
|
|
|
|
||
|
|
·
|
|
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
|
53
|
|
·
|
|
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.
Target
bonuses for 2008 for our executive officers have not been set. 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
2008.
Individual
objectives defined for 2008 are 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 2008 budget including $56.8 million capital expenditure work
program (within +/- 10% of budget) which includes the drilling of
6
development wells in Colombia, and 3 exploration wells, 2 in Colombia
and
1 in Argentina.
|
|
|
|
||
|
|
·
|
|
Exit
2008 at production rate of 4,200 barrels of oil per day, net after
royalty
|
|
·
|
Improve
operating efficiencies to reduce general and administrative costs
and
operating costs on a barrel of oil produced basis
|
||
|
·
|
Ensure
appropriate Environmental, Health, Safety and Security programs are
designed, implemented and monitored to meet or exceed relevant industry
standards. Target zero Lost Time Incidents amongst
employees
|
||
|
·
|
Ensure
effective community relations programs are designed, implemented
and
monitored in all of Gran Tierra Energy’s operating
environments
|
||
|
·
|
Finalize
Stock Exchange Listings in Canada and US
|
||
|
·
|
Ensure
compliance with Sarbanes Oxley requirements, including implementation
of
corporate governance, internal controls, and financial disclosure
controls, and IT controls, and develop SOX maintenance program for
2008
and beyond
|
||
|
·
|
Ensure
management and financial reporting systems, budgeting and forecasting
systems are developed and
maintained
|
||
54
|
·
|
Ensure
all tax, regulatory and contractual obligations are maintained in
all
jurisdictions where Gran Tierra Energy operates
|
||
|
·
|
Develop
corporate strategy and long-term plan and identify new opportunities
to
support plan
|
||
|
·
|
Identify
and secure additional sources of equity financing as
required
|
||
|
·
|
Maintain
active investor relations program targeting existing and potential
new
investors (press releases, road shows, analysts coverage and
website)
|
||
|
·
|
Ensure
Human Resource staffing, procedures and policies are consistent with
the
needs to meet 2008 Budget and commitments, and future growth of the
company, and SOX compliance
|
Chief
Financial Officer —
The
principal objectives for our Chief Financial Officer are as
follows:
|
·
|
Ensure
compliance with shareholder and regulatory reporting requirements
in US
and Canada
|
||
|
·
|
Finalize
and maintain Stock Exchange Listings in Canada and USA
|
||
|
·
|
Ensure
compliance with Sarbanes Oxley requirements, including implementation
and
maintenance of corporate governance, internal controls and financial
disclosure controls
|
||
|
·
|
Maintain,
develop and enhance management, financial reporting, budgeting and
forecasting systems
|
||
|
·
|
Address
tax planning strategies
|
||
|
·
|
Develop
and maintain Treasury, IT and Corporate Secretarial functions and
systems
|
||
|
·
|
Assist
our Chief Executive Officer in developing corporate strategy and
long-term
plan
|
||
|
·
|
Secure
additional sources of financing as required
|
||
|
·
|
Assist
our Chief Executive Officer in developing and implementing an investor
relations strategy
|
||
|
·
|
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
2008 at 4,200 barrels of oil per day, net after royalty
|
||
|
|
·
|
|
Reduce
operating costs on a barrel of oil produced basis
|
|
|
|
||
|
|
·
|
|
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
2008 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 2009
drilling
|
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 2008 have been defined in context of the
2008 Budget, which defines a work program, capital expenditure budget and
operating results for the year. No personal objectives have been defined at
this
time.
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.
55
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 50
th—
75
th
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.
In
December 2007, our Compensation Committee again granted options to each of
our executive officers as follows: Mr. Coffield 237,500 shares;
Mr. Eden 100,000 shares; Mr. Wei 100,000 shares; Mr. Orunesu
75,000 shares; and Mr. Dyes 200,000 shares. The levels of these awards were
based on the 2007 Mercer survey, using the 50
th
to
75
th
percentile for the position with in the peer group for the industry based on
value according to a Black-Scholes calculation. For 2007, the Compensation
Committee also considered elements of individual, business unit and corporate
performance in determining grant levels.
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.
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 years ended December 31, 2006 and
2007, 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, 2007 (the “Named Executive
Officers”):
Summary
Compensation Table for Fiscal 2006 and 2007
|
Name
and
|
Salary
($)
|
Bonus
|
Option
Awards
|
All
Other
Compensation
($)
|
|||||||||||||||
|
principal position
|
Year
|
(1)
|
($)
|
($)
(2)(3)
|
(4)
|
Total
($)
|
|||||||||||||
|
Dana
Coffield
President
and Chief Executive Officer
|
2007
|
$
|
214,525
|
$
|
148,215
|
$
|
112,825
|
$
|
475,565
|
||||||||||
|
|
|||||||||||||||||||
|
|
2006
|
$
|
154,458
|
$
|
92,250
|
$
|
23,400
|
—
|
$
|
270,108
|
|||||||||
|
|
|||||||||||||||||||
|
Martin
Eden
Vice
President, Finance and Chief Financial Officer
|
2007
|
$
|
193,073
|
$
|
74,108
|
$
|
128,470
|
$
|
395,651
|
||||||||||
|
|
|||||||||||||||||||
|
|
2006
|
N/A
|
N/A
|
N/A
|
—
|
||||||||||||||
|
|
|||||||||||||||||||
|
Rafael
Orunesu
President,
Gran Tierra Argentina
|
2007
|
$
|
180,000
|
$
|
40,000
|
$
|
55,468
|
$
|
275,468
|
||||||||||
|
|
|||||||||||||||||||
|
|
2006
|
$
|
150,000
|
$
|
42,907
|
$
|
11,700
|
$
|
9,200
|
$
|
213,807
|
||||||||
|
|
|||||||||||||||||||
|
Max
Wei
Vice
President, Operations
|
2007
|
$
|
171,620
|
$
|
64,227
|
$
|
57,117
|
$
|
292,964
|
||||||||||
|
|
|||||||||||||||||||
|
|
2006
|
$
|
154,458
|
$
|
42,907
|
$
|
17,503
|
—
|
$
|
214,868
|
|||||||||
56
|
Edgar
Dyes
President,
Argosy Energy/Gran Tierra Energy
Columbia
|
2007
|
$
|
180,000
|
$
|
100,000
|
$
|
59,828
|
$
|
339,828
|
||||||||||
|
|
|||||||||||||||||||
|
|
2006
|
$
|
138,750
|
$
|
25,000
|
—
|
—
|
$
|
163,750
|
||||||||||
|
|
|||||||||||||||||||
|
James
Hart
Former
Vice President, Finance and former Chief Financial Officer
|
2007
|
$
|
32,178
|
$
|
N/A
|
$
|
—
|
$
|
32,178
|
||||||||||
|
|
|||||||||||||||||||
|
|
2006
|
$
|
154,458
|
$
|
92,250
|
$
|
14,625
|
—
|
$
|
261,133
|
|
(1)
|
|
Dana
Coffield, James Hart, Max Wei and Martin Eden 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 for 2006 information and at the December 31,
2007 exchange rate of one Canadian dollar to US $0.9881 for 2007
information.
|
|
|
|
|
|
(2)
|
|
Granted
under terms of our 2005 and 2007 Equity Incentive
Plans.
|
|
|
|
|
|
(3)
|
|
Assumptions
made in the valuation of stock options granted are discussed in Note
6 to
our 2006 Consolidated Financial Statements. Reflects the dollar amount
recognized for financial statement reporting purposes with respect
to the
fiscal year in accordance with FAS 123R, disregarding estimates of
forfeiture.
|
|
|
|
|
|
(4)
|
|
Cost
of living allowance.
|
Grants
of Plan-Based Awards
The
following table shows for the fiscal year ended December 31, 2007, certain
information regarding grants of plan-based awards to the Named Executive
Officers:
Grants
of Plan-Based Awards in Fiscal 2007
|
Name
|
Grant
Date
|
All
Other Option Awards:
Number
of Securities
Underlying
Options
(#)
|
Exercise
or Base Price of
Option
Awards
($/Sh)
|
Grant
Date Fair Value of
Stock
and Option
Awards
($)(1)
|
|||||||||
|
Mr.
Coffield
|
12/17/2007
|
237,500
|
2.14
|
$
|
308,750
|
||||||||
|
Mr.
Eden
|
12/17/2007
|
100,000
|
2.14
|
$
|
130,000
|
||||||||
|
Mr.
Wei
|
12/17/2007
|
100,000
|
2.14
|
$
|
130,000
|
||||||||
|
Mr.
Orunesu
|
12/17/2007
|
75,000
|
2.14
|
$
|
97,500
|
||||||||
|
Mr.
Dyes
|
12/17/2007
|
200,000
|
2.14
|
$
|
260,000
|
|
(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.
|
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 executive’s 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.
57
We
have
also entered into an employment agreement with Mr. Orunesu, through our
Ecuadorian 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 employee’s 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. Orunesu’s 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
$42,000 per year if he provides services in excess of 15 days per month in
Colombia. In addition, the agreement provides for an annual bonus along the
same
terms as described above for Messrs. Coffield, Hart and Wei, as well as the
right to participate in our company’s stock option plans, without specifying the
amount or criteria used. The contract became effective on April 1, 2006 and
terminated on April 1, 2008. Mr. Dyes also receives reasonable living
expenses while performing his duties in Colombia. The agreement provides for
severance payments equal to the amount of base salary plus bonus received for
the prior 12-month period in the event of termination without cause, termination
for good reason or termination for disability, prorated for the remaining term
of the agreement, payable within 30 days.
On
December 1, 2006, we entered into an executive employment agreement with
Mr. Eden that provides for an initial annual base salary of CDN$ 225,000
($193,073) In addition, the agreement provides for an annual bonus along the
same terms as described above of Messrs. Coffield, Hart and Wei, as well as
the right to participate in our company’s stock option plans, without specifying
the amount of criteria used. Mr. Eden’s employment agreement became
effective on January 2, 2007 and has an initial term of three years,
subject to extension or earlier termination and provides for severance payments,
in the event he is terminated without cause or terminates the agreement for
good
reason, in the amount of the greater of total cash compensation of the remaining
term and one year’s total cash compensation, with total cash compensation
meaning annualized salary plus bonus for the prior 12-month period. “Good
reason” includes an adverse change in the Mr. Eden’s position, title,
duties or responsibilities, or any failure to re-elect him to such position
(except for termination for “cause”). Mr. Eden’s employment agreement
includes customary indemnity, insurance, non-competition and confidentiality
provisions.
On
January 1, 2007, Mr. Hart resigned his position as Vice President
Finance and CFO, but remained with the company in an executive capacity as
Chief
Strategy Officer. On February 28, 2007 Mr. Hart resigned as an
employee of the company. He remained as a director until October 10,
2007.
Outstanding
Equity Awards at Fiscal year -end.
The
following table shows for the fiscal year ended December 31, 2007, certain
information regarding outstanding equity awards at fiscal year end for the
Named
Executive Officers.
The
following table provides information concerning unexercised options for each
Named Executive Officer outstanding as of December 31,
2007.
|
Name
|
Number
of Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option
Exercise Price
($)
|
Option
Expiration
Date
|
|||||||||||||||
|
Dana
Coffield
|
108,333
|
(1
|
)
|
54,167
|
(2
|
)
|
$
|
0.80
|
11/10/2015
|
||||||||||
|
|
66,666
|
(3
|
)
|
133,334
|
(4
|
)
|
$
|
1.27
|
11/8/2016
|
||||||||||
|
|
|
|
237,500
|
(6
|
)
|
$
|
2.14
|
12/17/2017
|
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
Martin
Eden
|
|
|
225,000
|
(5
|
)
|
$
|
1.19
|
01/02/2017
|
|||||||||||
|
|
|
|
100,000
|
(6
|
)
|
$
|
2.14
|
12/17/2017
|
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
Max
Wei
|
108,333
|
(1
|
)
|
54,167
|
(2
|
)
|
$
|
0.80
|
11/10/2015
|
||||||||||
|
|
33,333
|
(3
|
)
|
66,666
|
(4
|
)
|
$
|
1.27
|
11/8/2016
|
||||||||||
|
|
|
|
100,000
|
(6
|
)
|
$
|
2.14
|
12/17/2017
|
58
|
Rafael
Orunesu
|
108,333
|
(1
|
)
|
54,167
|
(2
|
)
|
$
|
0.80
|
11/10/2015
|
||||||||||
|
|
33,333
|
(3
|
)
|
66,667
|
(4
|
)
|
$
|
1.27
|
11/8/2016
|
||||||||||
|
|
|
|
75,000
|
(6
|
)
|
$
|
2.14
|
12/17/2017
|
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
Edgar
Dyes
|
33,333
|
(3
|
)
|
66,667
|
(4
|
)
|
$
|
1.27
|
11/8/2016
|
||||||||||
|
|
|
|
200,000
|
(6
|
)
|
$
|
2.14
|
12/17/2017
|
|||||||||||
|
James
Hart
|
54,167
|
(7
|
)
|
|
|
$
|
0.80
|
01/10/2008
|
|
(1)
|
|
The
right to exercise the option vested one half on November 10, 2006 and
one half on November 10, 2007.
|
|
|
|
|
|
(2)
|
|
The
right to exercise the option will vest on November 10, 2008, in such
case if the option holder is still employed by Gran Tierra on such
date.
|
|
|
|
|
|
(3)
|
|
The
right to exercise the option vested on November 8,
2007.
|
|
|
|
|
|
(4)
|
|
The
right to exercise one-half of the option will vest on each of
November 8, 2008 and November 8, 2009, in each such case if the
option holder is still employed by Gran Tierra on such
date.
|
|
|
|
|
|
(5)
|
|
The
right to exercise one-third of the option will vest on each of
January 2, 2008, January 2, 2009 and January 2, 2010 in
each such case if the option holder is still employed by Gran Tierra
on
such date.
|
|
|
|
|
|
(6)
|
|
The
right to exercise one third of the option will vest on each of
December 17, 2008, December 17, 2009 and December 17, 2010
in each such case if the option holder is still employed by Gran
Tierra on
such date.
|
|
|
|
|
|
(7)
|
|
The
right to exercise the option vested on November 10,
2006.
|
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, Eden and Wei are eligible to receive a payment
of two times the prior year's 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. Mr. Hart was previously entitled to contractual severance
arrangements consistent with those of Messrs. Coffield, Eden and Wei.
However, Mr. Hart left service as an officer of the company in
February 2007. If a change of control had occurred on December 31,
2007, 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
|
$
|
725,480
|
||
|
Mr. Eden
|
$
|
534,362
|
||
|
Mr. Wei
|
$
|
471,694
|
||
|
Mr. Orunesu
|
$
|
0
|
||
|
Mr. Dyes
|
$
|
280,000
|
||
Director
Compensation
Director
compensation for 2007 was as follows:
| Name |
Director
Compensation
|
Option
Awards
($)(1)
|
Total
($)
|
|||||||
|
Jeffrey
Scott
|
$
|
71,437
|
$
|
60,116
|
$
|
131,553
|
||||
|
Walter
Dawson
|
$
|
40,331
|
$
|
30,656
|
$
|
70,987
|
||||
|
Verne
Johnson
|
$
|
61,569
|
$
|
30,656
|
$
|
92,225
|
||||
|
Nadine
C. Smith (2)
|
$
|
55,347
|
$
|
30,656
|
$
|
86,003
|
||||
|
James
Hart (3)
|
$
|
16,518
|
$
|
—
|
$
|
16,518
|
||||
|
(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.
|
|
(2)
|
Ms. Smith ceased to be a director on March 27, 2008. | |
|
(3)
|
Mr. Hart ceased to be a director on October 10, 2007. |
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 paid 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 also paid an
additional fee of $6,436 per year for each committee chair (except for the
audit
committee) and $4,291 for each committee member (except for the audit
committee). The audit committee chair was paid a fee of $25,743 per year and
each member paid $12,872 per year. In addition, a fee of $644 was paid for
each
meeting attended. Directors who are not our employees are eligible to receive
awards under our 2005 and 2007 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.”
59
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 entity’s
board or compensation committee.
PRINCIPAL
AND SELLING STOCKHOLDERS
The
following table sets forth information regarding the beneficial ownership of
our
common stock as of April 1, 2008 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 and named executive 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 person’s address is
300, 611-10
th
Avenue,
S.W., Calgary, Alberta T2R 0B2, Canada. Shares of common stock subject to
options or warrants currently exercisable or exercisable within 60 days
following April 1, 2008 are deemed outstanding for computing the share and
percentage ownership 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.
|
Name
and Address of Beneficial Owner (1)
|
Amount
and Nature of
Beneficial
Ownership
|
Percentage
of Class
|
|||||
|
Dana
Coffield (2)
|
2,009,663
|
2.01
|
%
|
||||
|
Martin
Eden (3)
|
89,000
|
*
|
|||||
|
Max
Wei (4)
|
1,871,335
|
1.87
|
%
|
||||
|
Rafael
Orunesu (5)
|
1,951,349
|
1.95
|
%
|
||||
|
Edgar
Dyes (6)
|
33,334
|
*
|
|||||
|
Jeffrey
Scott (7)
|
2,647,195
|
|
2.64
|
%
|
|||
|
Walter
Dawson (8)
|
3,055,953
|
3.04
|
%
|
||||
|
Verne
Johnson (9)
|
1,858,714
|
|
1.86
|
%
|
|||
| Nicholas Kirton | -- | * | |||||
|
James
R. Hart (11)
|
1,688,889
|
1.69
|
%
|
||||
|
Greywolf
Capital Management LP (12)
|
7,337,001
|
7.10
|
%
|
||||
|
U.S.
Global Investors, Inc. (13)
|
6,409,017
|
6.31
|
%
|
||||
|
Directors
and officers as a group (total of 10 persons) (14)
|
15,205,432
|
|
14.87
|
%
|
*
Less
than 1%
|
(1)
|
Beneficial
ownership is calculated based on 99,988,644 shares of common stock
issued
and outstanding as of April 1, 2008, which number includes 11,827,776
shares of common stock issuable upon the exchange of the exchangeable
shares of Goldstrike Exchange Co. issued to certain former holders
of Gran
Tierra Canada’s 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 April 1, 2008. 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 person’s name, subject to community property laws, where
applicable.
|
|||
|
(2)
|
The
number of shares beneficially owned includes an option to acquire
175,001
shares of common stock exercisable within 60 days of April 1, 2008,
and shares issuable upon exercise of warrants to acquire 48,327 shares
of
common stock exercisable within 60 days of April 1, 2008. 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
75,000
shares of common stock exercisable within 60 days of April 1, 2008.
The number beneficially owned includes 14,000 shares of common stock
directly owned by Mr. Eden’s spouse.
|
|||
|
(4)
|
The
number of shares beneficially owned includes an option to acquire
141,668
shares of common stock exercisable within 60 days of April 1, 2008,
and shares issuable upon exercise of a warrant to acquire 13,328
shares of
common stock exercisable within 60 days of April 1, 2008. The number
of shares beneficially owned also includes 1,689,683 exchangeable
shares.
|
|||
60
|
(5)
|
The
number of shares beneficially owned includes an option to acquire
141,668
shares of common stock exercisable within 60 days of April 1, 2008,
and shares issuable upon exercise of a warrant to acquire 40,000
shares of
common stock exercisable within 60 days of April 1, 2008. 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
33,334
shares of common stock exercisable within 60 days of April 1,
2008,
|
|||
|
(7)
|
The
number of shares beneficially owned includes an option to acquire
133,334
shares of common stock exercisable within 60 days of April 1, 2008,
and shares issuable upon exercise of warrants to acquire 274,991
shares of
common stock exercisable within 60 days of April 1, 2008. The number
of shares beneficially owned also includes 1,688,889 exchangeable
shares.
|
|||
|
(8)
|
The
number of shares beneficially owned includes an option to acquire
83,334
shares of common stock exercisable within 60 days of April 1, 2008.
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 April 1, 2008, 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.
Dawson’s 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. Dawson’s spouse.
|
|||
|
(9)
|
|
The
number of shares beneficially owned includes an option to acquire
83,334
shares of common stock exercisable within 60 days of April 1, 2008,
and shares issuable upon exercise of a warrant to acquire 112,496
shares
of common stock exercisable within 60 days of April 1, 2008. The
number of shares beneficially owned includes 1,292,063 exchangeable
shares, of which 396,825 are held by KristErin 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 KristErin Resources, Ltd.
|
||
|
|
|
|||
|
(10)
|
|
Mr.
Kirton joined the Board on March 27, 2008.
|
||
|
|
|
|||
|
(11)
|
|
Based
on information received February 11, 2008. The number of shares
beneficially owned includes 1,688,889 shares of common stock issuable
upon the exchange of exchangeable shares. Mr. Hart was formerly our
Chief
Financial Officer, Chief Strategy Officer and a member of the
Board.
|
||
|
|
|
|||
|
(12)
|
|
Greywolf
Capital Management LP is the investment manager for (a) Greywolf
Capital Overseas Fund (“GCOF”), which owns 2,871,720 shares of common
stock and a warrant to acquire 2,400,000 shares of common stock
exercisable within 60 days of April 1, 2008, and (b) Greywolf
Capital Partners II (“GCP”), which owns 1,131,947 shares of common stock
and a warrant to acquire 933,334 shares of common stock exercisable
within
60 days of April 1, 2008. 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.
|
||
|
|
|
|||
|
(13)
|
|
Based
on information received as of February 11, 2008. Includes shares
beneficially owned by US Global Investors — Global Resources Fund (the
“Global Fund”) and Meridian Global Energy and Resources Fund Ltd.
(the “Meridian Resources 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 February 11, 2008. The Meridian
Resources Fund owns 858,675 shares of common stock and a warrant
to
acquire 116,667 shares of common stock exercisable within 60 days of
February 11, 2008. U.S. Global Investors has the power to vote and
dispose
of the shares of common stock beneficially owned by the Global Fund
and
the Meridian Resources Fund. The address for US Global Investors,
Inc. is
7900 Callaghan Road, San Antonio, Texas 78229.
|
||
|
|
|
|||
|
(14)
|
|
The
number of shares beneficially owned includes options to acquire 1,004,174
shares of common stock exercisable within 60 days of April 1, 2008,
and warrants to acquire 1,276,643 shares of common stock exercisable
within 60 days of April 1, 2008. The number of shares beneficially
owned also includes 11,428,573 exchangeable shares.
|
||
61
Selling
Stockholders
This
prospectus covers shares, including shares underlying warrants, sold in our
June, 2006, private equity offering to “accredited investors” as defined by Rule
501(a) under the Securities Act pursuant to an exemption from registration
provided in Regulation D, Rule 506 under Section 4(2) of the
Securities Act. The selling stockholders may from time to time offer and sell
under this prospectus any or all of the shares listed opposite each of their
names below. We are required, under a registration rights agreement, to register
for resale the shares of our common stock described in the table
below.
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 such 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 February 11, 2008. 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 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, 6 of the selling
stockholders are broker-dealers, 20 of the selling stockholders are affiliates
of broker-dealers and 4 of the selling stockholders are both broker-dealers
and
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 and footnotes thereto set 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 in
accordance with Rule 13d-3 of the Exchange Act. Under such rule, 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, and such information is not
necessarily indicative of beneficial ownership for any other
purpose.
Beneficial
ownership is calculated based on 96,053,053 shares of our common stock
outstanding as of February 11, 2008, which includes 12,303,966 exchangeable
shares of Goldstrike Exchange Co. issued to holders of Gran Tierra Canada’s
common stock. 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 February 11, 2008 are deemed
outstanding even if they have not actually been exercised. Those shares,
however, are not deemed outstanding for the purpose of calculating the
beneficial ownership of any other selling stockholder. The persons and entities
named in the table have sole voting and sole investment power with respect
to
the shares set forth opposite the stockholder’s name, subject to community
property laws, where applicable.
|
Selling
Shareholder
|
Shares
of Common Stock Beneficially Owned
Prior
to the Offering(c)
|
Shares
of Common Stock Being Offered(a)
|
Shares
of Common Stock Being Offered Which are Subject to
Warrants(a)(b)
|
|
Shares
of Common Stock Beneficially Owned Afer Completion of the
Offering(c)(d)
|
Percent
Ownership
|
||||||||||
|
Alan
J. Rubin Revocable Trust
|
99,999
|
66,666
|
33,333
|
-
|
-
|
|||||||||||
|
Alec
P. Morrison and Sandra Morrison†
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Alexander
Cox (e)**
|
200,000
|
200,000
|
- |
-
|
-
|
|||||||||||
|
Alfonso
Kimche†
|
25,001
|
16,667
|
8,334
|
-
|
-
|
|||||||||||
|
Alvin
L. Gray†
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Anne
Lindsay Cohn Holstead†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
62
|
Anthony
Jacobs
|
300,000
|
200,000
|
100,000
|
-
|
-
|
|||||||||||
|
Arnold
Schumsky†
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
Arthur
Sinensky†
|
99,999
|
66,666
|
33,333
|
-
|
-
|
|||||||||||
|
Atlantis
Company Profit Sharing Plan1**
|
71,500
|
50,000
|
-
|
21,500
|
*
|
|||||||||||
|
Bancor
Inc.2
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Ben
T. Morris3
|
138,750
|
30,000
|
15,000
|
93,750
|
*
|
|||||||||||
|
Benedek
Investment Group, LLC4†
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Bill
Birdwell & Willie C. Birdwell
|
37,500
|
25,000
|
12,500
|
-
|
-
|
|||||||||||
|
Bill
Haak & Johnnie S. Haak
|
115,000
|
50,000
|
25,000
|
40,000
|
*
|
|||||||||||
|
Blake
Selig†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
GMP
Securities Inc I/T/F 7TO-2209F5
|
116,666
|
-
|
116,666
|
-
|
-
|
|||||||||||
|
Bobby
Smith Cohn†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Brad
D. Sanders†
|
37,500
|
25,000
|
12,500
|
-
|
-
|
|||||||||||
|
Bret
D. Sanders†
|
37,500
|
25,000
|
12,500
|
-
|
-
|
|||||||||||
|
Brian
Cole†
|
25,500
|
17,000
|
8,500
|
-
|
-
|
|||||||||||
|
Brian
Kuhn
|
263,000
|
170,000
|
85,000
|
8,000
|
*
|
|||||||||||
|
Brian
Payne and Heather Payne T/I/C†
|
22,500
|
15,000
|
7,500
|
-
|
-
|
|||||||||||
|
Brion
Bailey†
|
22,500
|
15,000
|
7,500
|
-
|
-
|
|||||||||||
|
Bristol
Investment Fund, Ltd.6†
|
500,000
|
333,333
|
166,667
|
-
|
-
|
|||||||||||
|
Bruce
R. McMaken7**
|
25,500
|
25,500
|
-
|
-
|
-
|
|||||||||||
|
Bruce
Slovin†
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Brunella
Jacs LLC8†
|
99,999
|
66,666
|
33,333
|
-
|
-
|
|||||||||||
|
Capital
Ventures International9**
|
500,000
|
500,000
|
-
|
-
|
-
|
|||||||||||
|
Carl
Pipes†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Carmax
Enterprises Corporation10
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Carmen
Neufeld
|
154,988
|
99,992
|
49,996
|
5,000
|
*
|
|||||||||||
|
Carol
C. Barbour Profit Sharing Plan FBO: Carol C. Barbour
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Carol
Edelson
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Carol
Tambor†
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
Carter
Pope
|
270,000
|
133,333
|
66,667
|
70,000
|
*
|
|||||||||||
|
Caryl
R. Reese and Albert L. Reese†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Castlerigg
Master Investments Ltd.11†
|
2,000,001
|
1,333,334
|
666,667
|
-
|
-
|
|||||||||||
|
Cathy
Selig†
|
50,001
|
33,334
|
16,667
|
-
|
-
|
|||||||||||
|
CD
Investment Partners, Ltd12**
|
333,334
|
333,334
|
-
|
-
|
-
|
|||||||||||
|
Chad
Oakes13†
|
644,957
|
179,990
|
89,995
|
374,972
|
*
|
|||||||||||
|
Charles
R. Ofner and Diane Ofner
|
202,500
|
135,000
|
67,500
|
-
|
-
|
|||||||||||
|
Chester
Family 1997 Trust UAD 12/09/199714†
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
Chris
Gandalfo†
|
15,000
|
10,000
|
5,000
|
-
|
-
|
|||||||||||
|
Christian
Thomas Swinbank UAD 03/14/0615
|
87,001
|
33,334
|
16,667
|
37,000
|
*
|
|||||||||||
|
Christine
M. Sanders†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Chuck
Ramsay†(15A)**
|
50,000
|
50,000
|
-
|
-
|
-
|
|||||||||||
|
City
and Claremont Capital Assets Limited16
|
83,333
|
-
|
83,333
|
-
|
-
|
|||||||||||
|
Clarence
Tomanik†
|
149,988
|
99,992
|
49,996
|
-
|
-
|
|||||||||||
|
Constance
O. Welsch/Simple IRA
|
15,000
|
10,000
|
5,000
|
-
|
-
|
|||||||||||
|
Courtney
Cohn Hopson Separate Account†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Cranshire
Capital, L.P.17
|
85,333
|
-
|
83,333
|
2,000
|
*
|
|||||||||||
|
Dale
Foster18
|
191,825
|
49,992
|
24,996
|
116,837
|
*
|
|||||||||||
|
Dale
Tremblay
|
99,999
|
66,666
|
33,333
|
-
|
-
|
|||||||||||
|
Dan
L. Duncan†
|
375,000
|
250,000
|
125,000
|
-
|
-
|
|||||||||||
|
Dan
O’Brien†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Dana
Quentin Coffield19
|
2,009,663
|
66,667
|
33,334
|
1,909,662
|
2.0
|
%
|
||||||||||
|
Daniel
A. Corbin
|
27,500
|
-
|
27,500
|
-
|
-
|
|||||||||||
|
Daniel
Todd Dane20
|
849,977
|
66,666
|
33,333
|
749,978
|
*
|
|||||||||||
|
Don
A. Sanders21†
|
675,000
|
200,000
|
100,000
|
375,000
|
*
|
63
|
Datavision
Computer Video, Inc.22†
|
50,001
|
33,334
|
16,667
|
-
|
-
|
|||||||||||
|
David
L. Shadid†
|
50,001
|
33,334
|
16,667
|
-
|
-
|
|||||||||||
|
David
M. Breen & Shelly P. Breen†
|
22,500
|
15,000
|
7,500
|
-
|
-
|
|||||||||||
|
David
M. Robichaux PSP†(22A)**
|
25,001
|
25,001
|
-
|
-
|
-
|
|||||||||||
|
David
N. Malm Anaesthesia Inc.23
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
David
Shapiro†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
David
T. Jensen†
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
David
Towery
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
David
Westlund†
|
90,000
|
60,000
|
30,000
|
-
|
-
|
|||||||||||
|
Delores
Antonsen
|
60,000
|
40,000
|
20,000
|
-
|
-
|
|||||||||||
|
DKR
Soundshore Oasis Holding Fund Ltd.24†
|
500,000
|
333,333
|
166,667
|
-
|
-
|
|||||||||||
|
Don
S. Cook†
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
Donald
A. Wright25
|
1,408,730
|
500,000
|
250,000
|
658,730
|
*
|
|||||||||||
|
Donald
J. Roennigke
|
37,500
|
25,000
|
12,500
|
-
|
-
|
|||||||||||
|
Donald
L. Poarch
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Donald
Moss
|
80,000
|
53,333
|
26,667
|
-
|
-
|
|||||||||||
|
Donald
R. Kendall, Jr.†
|
37,500
|
25,000
|
12,500
|
-
|
-
|
|||||||||||
|
Donald
Streu†
|
25,500
|
17,000
|
8,500
|
-
|
-
|
|||||||||||
|
Donald
V. Weir and Julie E. Weir26†
|
258,750
|
110,000
|
55,000
|
93,750
|
*
|
|||||||||||
|
Donna
Moss†
|
22,500
|
15,000
|
7,500
|
-
|
-
|
|||||||||||
|
Dr. William
Grose Agency†
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
Duane
Renfro†
|
50,001
|
33,334
|
16,667
|
-
|
-
|
|||||||||||
|
Duke
Family Rev. Living Trust UAD 03/08/200627†
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
Ed
McAninch†
|
60,000
|
40,000
|
20,000
|
-
|
-
|
|||||||||||
|
Edmund
Melhado†
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Edward
B. Antonsen28
|
87,500
|
40,000
|
27,500
|
20,000
|
*
|
|||||||||||
|
Edward
F. Heil
|
249,999
|
166,666
|
83,333
|
-
|
-
|
|||||||||||
|
Edward
Muchowski29†
|
308,730
|
100,000
|
50,000
|
158,730
|
*
|
|||||||||||
|
Edwin
Freedman
|
300,000
|
200,000
|
100,000
|
-
|
-
|
|||||||||||
|
Elizabeth
Kirby Cohn McCool Separate Property†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Emily
H. Todd Separate Property†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Emily
Harris Todd IRA†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Enable
Growth Partners LP30**
|
375,000
|
375,000
|
-
|
-
|
-
|
|||||||||||
|
Enable
Opportunity Partners LP31**
|
75,000
|
75,000
|
-
|
-
|
-
|
|||||||||||
|
Eric
Glen Weir†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
F.
Berdon Co. L.P.32
|
5,000
|
5,000
|
-
|
-
|
-
|
|||||||||||
|
Faccone
Enterprises Ltd.33†
|
45,625
|
20,000
|
10,000
|
15,625
|
*
|
|||||||||||
|
Frank
J. Metyko Residuary Trust34†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Fred
A. Stone, Jr.
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Fred
Parrish Investments PTY Ltd.†
|
100,001
|
66,667
|
33,334
|
-
|
-
|
|||||||||||
|
Gary
Friedland
|
13,000
|
3,000
|
10,000
|
-
|
-
|
|||||||||||
|
Gary
Gee Wai Hoy and Lily Lai Wan Hoy35**
|
24,119
|
8,500
|
-
|
15,619
|
*
|
|||||||||||
|
George
L. Ball36†
|
198,750
|
70,000
|
35,000
|
93,750
|
*
|
|||||||||||
|
Georges
Antoun & Martha Antoun†
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
Gerald
Golub†
|
50,001
|
33,334
|
16,667
|
-
|
-
|
|||||||||||
|
Geriann
Sweeney & Louis Paul Lohn Com Prop
|
100,001
|
66,667
|
33,334
|
-
|
-
|
|||||||||||
|
Glenn
Andrew Welsch TTEE Constance Welsch Trust U/A DTD 12/18/95
|
22,500
|
15,000
|
7,500
|
-
|
-
|
|||||||||||
|
Glenn
Fleischhacker
|
25,001
|
16,667
|
8,334
|
-
|
-
|
|||||||||||
|
Gonzalo
Vazquez
|
95,000
|
60,000
|
35,000
|
-
|
-
|
|||||||||||
|
Gottbetter
& Partners, LLP in Trust for Besser Kapital Fund Ltd37†
|
100,001
|
66,667
|
33,334
|
-
|
-
|
|||||||||||
|
Grace
To
|
5,000
|
-
|
5,000
|
-
|
-
|
|||||||||||
|
Gran
Tierra Investments38
|
249,999
|
166,666
|
83,333
|
-
|
-
|
|||||||||||
|
Grant
E. Sims and Patricia Sims†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
64
|
Eric
R. Sims UTMA TX39†
|
7,500
|
5,000
|
2,500
|
-
|
-
|
|||||||||||
|
Ryan
S. Sims UTMA TX40†
|
7,500
|
5,000
|
2,500
|
-
|
-
|
|||||||||||
|
Scott
A. Sims UTMA TX41†
|
7,500
|
5,000
|
2,500
|
-
|
-
|
|||||||||||
|
Grant
Hodgins42†
|
41,119
|
17,000
|
8,500
|
15,619
|
*
|
|||||||||||
|
Gregg
J. Sedun43
|
162,491
|
50,000
|
50,000
|
62,491
|
*
|
|||||||||||
|
Gregory
Selig Lewis†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Greywolf
Capital Overseas Fund LP44†
|
7,200,000
|
4,800,000
|
2,400,000
|
-
|
-
|
|||||||||||
|
Greywolf
Capital Partners II, LP45†
|
2,800,001
|
1,866,667
|
933,334
|
-
|
-
|
|||||||||||
|
H.
Markley Crosswell, III
|
7,500
|
-
|
7,500
|
-
|
-
|
|||||||||||
|
Hal
Rothbaum
|
100,001
|
66,667
|
33,334
|
-
|
-
|
|||||||||||
|
Harborview
Master Fund LP46†
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Harvey
Friedman Francine Friedman†
|
25,001
|
16,667
|
8,334
|
-
|
-
|
|||||||||||
|
Hazel
Bennett47
|
15,000
|
10,000
|
5,000
|
-
|
-
|
|||||||||||
|
Heather
and Ian Campbell
|
98,167
|
13,334
|
6,667
|
78,166
|
*
|
|||||||||||
|
Herbert
Lippin†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Hiroshi
Ogata†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Hollyvale
Limited48†
|
35,500
|
17,000
|
8,500
|
10,000
|
*
|
|||||||||||
|
Hooter’s
Welding Ltd.†
|
20,250
|
13,500
|
6,750
|
-
|
-
|
|||||||||||
|
Howard
Simon†(48A)**
|
99,999
|
99,999
|
-
|
-
|
-
|
|||||||||||
|
Hudson
Bay Fund, LP49†
|
149,499
|
99,666
|
49,833
|
-
|
-
|
|||||||||||
|
Hudson
Bay Overseas Fund, Ltd.50†
|
50,001
|
33,334
|
16,667
|
-
|
-
|
|||||||||||
|
Humphrey
Family Limited Partnership51†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Hunter
& Co. LLC Defined Pension Plan52†
|
52,500
|
35,000
|
17,500
|
-
|
-
|
|||||||||||
|
Ilex
Investments LP53
|
100,000
|
-
|
100,000
|
-
|
-
|
|||||||||||
|
Investcorp
Interlachen Multi-Strategy Master Fund Limited54
|
1,284,000
|
50,000
|
950,000
|
284,000
|
*
|
|||||||||||
|
IRA
FBO Andrew Klein Pershing LLC as Custodian†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
IRA
FBO Anthony Jacobs Pershing LLC as Custodian Rollover
Account
|
225,000
|
150,000
|
75,000
|
-
|
-
|
|||||||||||
|
IRA
FBO Bessie Montesano Pershing LLC as Custodian†
|
50,001
|
33,334
|
16,667
|
-
|
-
|
|||||||||||
|
IRA
FBO Christopher Neal Todd, Pershing LLC as Custodian Rollover
Account†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
IRA
FBO Erik Klefos Pershing LLC as Custodian55
|
47,100
|
30,000
|
15,000
|
2,100
|
*
|
|||||||||||
|
IRA
FBO Hyman Gildenhorn Pershing LLC as Custodian†
|
228,000
|
152,000
|
76,000
|
-
|
-
|
|||||||||||
|
IRA
FBO Jeff G. Mallett / Pershing LLC as Custodian / Roth Account†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
IRA
FBO Jill Anne Harris Pershing as Custodian56†
|
25,001
|
16,667
|
8,334
|
-
|
-
|
|||||||||||
|
IRA
FBO Lewis S. Rosen Pershing LLC as Custodian
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
IRA
FBO Linda Lorelle Gregory/Pershing LLC as Custodian†(56A)**
|
45,000
|
45,000
|
-
|
-
|
-
|
|||||||||||
|
IRA
FBO Lisa Marcelli Pershing LLC as Custodian57**
|
24,999
|
24,999
|
-
|
-
|
-
|
|||||||||||
|
IRA
FBO Marc W. Evans Pershing LLC as Custodian58†**
|
24,999
|
24,999
|
-
|
-
|
-
|
|||||||||||
|
IRA
FBO Merila F. Peloso Pershing LLC as Custodian Rollover
Account(58A)**
|
24,999
|
24,999
|
-
|
-
|
-
|
|||||||||||
|
IRA
FBO Paul H. Sanders, Jr./Pershing LLC as Custodian Rollover
Account†
|
15,000
|
10,000
|
5,000
|
-
|
-
|
|||||||||||
|
IRA
FBO Paula L. Santoski Pershing LLC as Custodian†
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
IRA
FBO Robert C. Clifford Pershing LLC as Custodian Rollover
Account
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
|
IRA
FBO Robert E. Witt Pershing LLC as Custodian Rollover Account†
|
60,000
|
40,000
|
20,000
|
-
|
-
|
|||||||||||
|
IRA
FBO Robert Larry Kinney/Pershing LLC as Custodian Rollover
Account
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
IRA
FBO Scott M. Marshall Pershing LLC as Custodian†
|
144,000
|
96,000
|
48,000
|
-
|
-
|
|||||||||||
|
IRA
FBO: Michael W. Mitchell/Pershing LLC as Custodian Rollover
Account
|
75,000
|
50,000
|
25,000
|
-
|
-
|
65
|
Iroquois
Master Fund Ltd.59
|
83,333
|
-
|
83,333
|
-
|
-
|
|||||||||||
|
Jackie
S. Moore†
|
37,500
|
25,000
|
12,500
|
-
|
-
|
|||||||||||
|
James
B. Terrell Trust UAD 09/12/9060
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
James
Garson†
|
50,001
|
33,334
|
16,667
|
-
|
-
|
|||||||||||
|
James
McNeill†
|
499,950
|
333,300
|
166,650
|
-
|
-
|
|||||||||||
|
James
R. Timmins and Alice M. Timmins †
|
124,998
|
83,332
|
41,666
|
-
|
-
|
|||||||||||
|
James
W. Christie†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
James
W. Christmas†
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Jan
Bartholomew61†**
|
24,999
|
24,999
|
-
|
-
|
-
|
|||||||||||
|
Jan
Rask**
|
295,000
|
295,000
|
-
|
-
|
-
|
|||||||||||
|
Janet
E. Sikes
|
15,000
|
10,000
|
5,000
|
-
|
-
|
|||||||||||
|
Jay
Moorin†**
|
1,000,001
|
1,000,001
|
-
|
-
|
-
|
|||||||||||
|
Jeff
G. Mallett & Company Inc. PSP/FBO Jeff G. Mallett†
|
37,500
|
25,000
|
12,500
|
-
|
-
|
|||||||||||
|
Jeff
G. Mallett & Company PSP/FBO Denise M. Anderson†
|
7,500
|
5,000
|
2,500
|
-
|
-
|
|||||||||||
|
Jeffrey
J. Orchen
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Jeffrey
J. Orchen P/S Plan DTD 1/1/9562
|
89,000
|
59,333
|
29,667
|
-
|
-
|
|||||||||||
|
Jeffrey
J. Scott63†
|
2,547,195
|
100,000
|
50,000
|
2,397,195
|
2.5
|
%
|
||||||||||
|
Jeffrey
Schnipper†
|
60,000
|
40,000
|
20,000
|
-
|
-
|
|||||||||||
|
Jens
Hansen†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Jim
Taylor(63A)**
|
30,000
|
30,000
|
-
|
-
|
-
|
|||||||||||
|
Joe
M. Bailey
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Joel
Stuart†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
John
and Jodi Malanga64
|
63,000
|
17,000
|
8,500
|
37,500
|
*
|
|||||||||||
|
John
H. Gray
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
John
I. Mundy Separate Property†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Mundy
2000 Gift Trust Dtd 01/01/200065
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
John
L. Nau III and Barbara Nau
|
202,500
|
135,000
|
67,500
|
-
|
-
|
|||||||||||
|
John
M. O’Quinn
|
225,000
|
150,000
|
75,000
|
-
|
-
|
|||||||||||
|
John
N. Spiliotis†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
John
V. Hazleton Jr. & Bonnie C. Hazleton†
|
19,500
|
13,000
|
6,500
|
-
|
-
|
|||||||||||
|
John
W. Johnson†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
John
W. Lodge III
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
Jonathan
Day
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Jorge
Cangini
|
66,667
|
40,000
|
20,000
|
6,667
|
*
|
|||||||||||
|
Joseph
A. Ahearn†
|
50,001
|
33,334
|
16,667
|
-
|
-
|
|||||||||||
|
Joseph
A. Cech
|
50,000
|
26,700
|
13,350
|
9,950
|
*
|
|||||||||||
|
Joseph
B. Swinbank
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Joseph
H. Flom
|
25,000
|
-
|
25,000
|
-
|
-
|
|||||||||||
|
Judith
Ann Bates
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Judith
Ricciardi†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Julius
Johnston IV†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Katherine
U. Sanders 199066†
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Katherine
U. Sanders Children Trust Dtd. 200367†
|
375,000
|
250,000
|
125,000
|
-
|
-
|
|||||||||||
|
Ken
Wong68†
|
41,125
|
17,000
|
8,500
|
15,625
|
*
|
|||||||||||
|
Kenneth
Kaplan†
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
Kevin
Donald Poynter
|
300,000
|
200,000
|
100,000
|
-
|
-
|
|||||||||||
|
Kiyoshi
Fujieda
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Kyung
Chun Min69†
|
32,700
|
16,800
|
8,400
|
7,500
|
*
|
|||||||||||
|
L
G
Vela†
|
25,001
|
16,667
|
8,334
|
-
|
-
|
|||||||||||
|
Lakeview
Fund, LP70**
|
22,861
|
22,861
|
-
|
-
|
-
|
|||||||||||
|
Lance
DG Uggla
|
599,990
|
399,993
|
199,997
|
-
|
-
|
|||||||||||
|
Larry
F. Crews
|
76,399
|
16,999
|
8,500
|
50,900
|
*
|
66
|
Larry
Martin†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Larry
Zalk†
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
Laura
Connally†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Laura
K. Sanders†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Lawrence
Johnson West
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Lee
Corbin
|
22,500
|
8,500
|
8,500
|
5,500
|
*
|
|||||||||||
|
Leigh
Ellis and Mimi G. Ellis†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Lenny
Olim†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Leo
Wong
|
75,000
|
-
|
25,000
|
50,000
|
*
|
|||||||||||
|
SEP
IRA Leticia Turullos†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Liaqat
A Khan†
|
25,500
|
17,000
|
8,500
|
-
|
-
|
|||||||||||
|
Lisa
Dawn Weir†
|
60,000
|
40,000
|
20,000
|
-
|
-
|
|||||||||||
|
Lloyd
Clark
|
14,800
|
6,400
|
8,400
|
-
|
-
|
|||||||||||
|
Lorain
S. Davis Trust U/A DTD 11/10/198671†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Louis
and Carol Zehil†
|
99,999
|
66,666
|
33,333
|
-
|
-
|
|||||||||||
|
Louis
Gleckel, MD
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
LSM
Business Services Ltd.72
|
76,875
|
20,000
|
10,000
|
46,875
|
*
|
|||||||||||
|
Luc
Chartrand73
|
271,230
|
75,000
|
37,500
|
158,730
|
*
|
|||||||||||
|
Luke
J. Drury Non-Exempt Trust74†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
M.
St. John Dinsmore
|
60,000
|
40,000
|
20,000
|
-
|
-
|
|||||||||||
|
Mac
Haik
|
300,000
|
200,000
|
100,000
|
-
|
-
|
|||||||||||
|
The
Powell Family Trust U/A DTD 5/7/0475†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Margaret
G. Reed†
|
25,500
|
17,000
|
8,500
|
-
|
-
|
|||||||||||
|
Maria
Checa
|
20,000
|
-
|
20,000
|
-
|
-
|
|||||||||||
|
Mark
& Monica Tompson†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Mark
J. Drury Non-Exempt Trust76†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Mark
Leszczynski†(76A)**
|
50,001
|
50,001
|
-
|
-
|
-
|
|||||||||||
|
Mark
N. Davis†
|
25,001
|
16,667
|
8,334
|
-
|
-
|
|||||||||||
|
Markus
Ventures, L.P.77
|
300,000
|
200,000
|
100,000
|
-
|
-
|
|||||||||||
|
Mary
E. Shields(77A)**
|
24,999
|
24,999
|
-
|
-
|
-
|
|||||||||||
|
Mary
Harris Cooper†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Matthew
D. Myers
|
25,500
|
17,000
|
8,500
|
-
|
-
|
|||||||||||
|
Matthew
J. Drury Non-Exempt Trust78†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Max
M. Dillard†
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Max
Wei79†
|
1,871,335
|
26,656
|
13,328
|
1,831,351
|
1.9
|
%
|
||||||||||
|
Mazzei
Holding LLC80†**
|
50,000
|
50,000
|
-
|
-
|
-
|
|||||||||||
|
McCarron
Family Partners Ltd.81
|
34,999
|
16,666
|
8,333
|
10,000
|
*
|
|||||||||||
|
Melton
Pipes IRA Pershing LLC as Custodian†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Melvin
Howard†(81A)**
|
45,000
|
33,000
|
12,000
|
-
|
-
|
|||||||||||
|
Merrick
C. Marshall†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Michael
Glita & Joan Glita
|
480,000
|
100,000
|
50,000
|
330,000
|
*
|
|||||||||||
|
Michael
J. Gaido, Jr. Special Account
|
188,999
|
66,666
|
33,333
|
89,000
|
*
|
|||||||||||
|
Michael
J. Hampton†(81B)**
|
75,000
|
69,500
|
5,500
|
-
|
-
|
|||||||||||
|
Michael
L Thiele Elaine D Thiele(81C)†**
|
200,000
|
200,000
|
-
|
-
|
-
|
|||||||||||
|
Michael
McNulty
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Michael
Paraskake82†
|
63,000
|
17,000
|
8,500
|
37,500
|
*
|
|||||||||||
|
Michael
S. Chadwick83
|
25,499
|
16,999
|
8,500
|
-
|
-
|
|||||||||||
|
Middlemarch
Partners LTD84
|
100,001
|
66,667
|
33,334
|
-
|
-
|
|||||||||||
|
Mike
Hudson†(84A)**
|
10,000
|
10,000
|
-
|
-
|
-
|
|||||||||||
|
Millennium
Global High Yield Fund Limited85†
|
4,002,000
|
2,668,000
|
1,334,000
|
-
|
-
|
|||||||||||
|
Millennium
Global Natural Resources Fund Limited86†
|
1,000,500
|
667,000
|
333,500
|
-
|
-
|
|||||||||||
|
Morton
A. Cohn†
|
225,000
|
150,000
|
75,000
|
-
|
-
|
|||||||||||
|
Morton
J. Weisberg†
|
39,999
|
26,666
|
13,333
|
-
|
-
|
|||||||||||
|
MP
Pensjon87†
|
1,049,970
|
699,980
|
349,990
|
-
|
-
|
67
|
Nadine
C. Smith88
|
1,464,830
|
69,425
|
31,664
|
1,363,741
|
1.42
|
%
|
||||||||||
|
Nancy
J. Harmon†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Nathan
Hagens†
|
60,000
|
40,000
|
20,000
|
-
|
-
|
|||||||||||
|
Neon
Rainbow Holdings Ltd.89†
|
25,500
|
17,000
|
8,500
|
-
|
-
|
|||||||||||
|
Nite
Capital LP90†
|
1,300,001
|
866,667
|
433,334
|
-
|
-
|
|||||||||||
|
Norman
Goldberg†
|
99,999
|
66,666
|
33,333
|
-
|
-
|
|||||||||||
|
Northcity
Investments Corp.91
|
25,500
|
17,000
|
8,500
|
-
|
-
|
|||||||||||
|
P
& J Fingerhut Family Trust92
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Paul
Evans(92A)†**
|
24,999
|
24,999
|
-
|
-
|
-
|
|||||||||||
|
Paul
Lukowitsch†
|
25,001
|
16,667
|
8,334
|
-
|
-
|
|||||||||||
|
Paul
Mitcham
|
60,000
|
40,000
|
20,000
|
-
|
-
|
|||||||||||
|
Paul
Osher and Sara Osher
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
Paul
Tate and Lara M. Tate†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Paula
L. Santoski Special Property†
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
Pauline
H. Gorman Trust UTD 3/10/93 UAD 03/10/9393†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Penn
Capital Management Capital Structure Opportunities Fund, LP94†
|
99,999
|
66,666
|
33,333
|
-
|
-
|
|||||||||||
|
Perfco
Investments Ltd.95†
|
2,972,619
|
200,000
|
100,000
|
2,672,619
|
2.8
|
%
|
||||||||||
|
PGS
Holdings Ltd.96
|
37,500
|
25,000
|
12,500
|
-
|
-
|
|||||||||||
|
Philip
M. Garner & Carol P. Garner
|
300,000
|
200,000
|
100,000
|
-
|
-
|
|||||||||||
|
Pierce
Diversified Strategy Master Fund LLC, Ena97**
|
50,000
|
50,000
|
-
|
-
|
-
|
|||||||||||
|
Platinum
Business Investment Company, Ltd.98†
|
300,000
|
200,000
|
100,000
|
-
|
-
|
|||||||||||
|
Professional
Billing Ltd.99†
|
200,000
|
133,333
|
66,667
|
-
|
-
|
|||||||||||
|
QRS
Holdings Ltd.100†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
RAB
American Opportunities Fund Limited101†
|
350,001
|
233,334
|
116,667
|
-
|
-
|
|||||||||||
|
Rafael
Orunesu102
|
1,951,349
|
80,000
|
40,000
|
1,831,349
|
1.9
|
%
|
||||||||||
|
Rahn
and Bodmer103†
|
99,999
|
66,666
|
33,333
|
-
|
-
|
|||||||||||
|
Richard
D. Kinder†
|
250,001
|
166,667
|
83,334
|
-
|
-
|
|||||||||||
|
Richard
Hochman104
|
22,500
|
15,000
|
7,500
|
-
|
-
|
|||||||||||
|
Richard
Machin105†**
|
63,750
|
26,250
|
-
|
37,500
|
*
|
|||||||||||
|
RJS
Jr./PLS 1992 Trust FBO Robert J. Santoski Jr.106†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Rob
Krahn
|
27,500
|
10,000
|
17,500
|
-
|
-
|
|||||||||||
|
Robert
Card†
|
15,000
|
10,000
|
5,000
|
-
|
-
|
|||||||||||
|
Robert
D. Steele107
|
549,960
|
80,000
|
40,000
|
429,960
|
*
|
|||||||||||
|
Robert
Freedman†
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Robert
K. Macleod108†
|
69,999
|
16,666
|
8,333
|
45,000
|
*
|
|||||||||||
|
Robert
Sayre Lindsey Sayre†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Robert
W. Y. Kung†
|
25,500
|
17,000
|
8,500
|
-
|
-
|
|||||||||||
|
Robert
Wilensky†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Robert
Zappia
|
60,000
|
40,000
|
20,000
|
-
|
-
|
|||||||||||
|
Roberta
Kintigh
|
25,500
|
17,000
|
8,500
|
-
|
-
|
|||||||||||
|
Robin
G. Forrester†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Rock
Associates109†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Ron
Davi†
|
200,000
|
133,333
|
66,667
|
-
|
-
|
|||||||||||
|
Scott
and Rose Anna Marshall, joint tenants
|
105,000
|
70,000
|
35,000
|
-
|
-
|
|||||||||||
|
Rosen
Family Trust110
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Rowena
M. Santos111
|
31,125
|
7,000
|
8,500
|
15,625
|
*
|
|||||||||||
|
Roy
Alan Price†
|
52,500
|
35,000
|
17,500
|
-
|
-
|
|||||||||||
|
Rubin
Children Trust112†
|
300,000
|
200,000
|
100,000
|
-
|
-
|
|||||||||||
|
Rune
Medhus Elisa Medhus M.D.113
|
152,500
|
56,000
|
30,000
|
66,500
|
*
|
|||||||||||
|
Russell
Hardin, Jr.†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Samuel
A. Jones†
|
37,500
|
25,000
|
12,500
|
-
|
-
|
|||||||||||
|
Sanders
Opportunity Fund (Institutional) LP114†
|
1,520,904
|
533,050
|
266,525
|
721,329
|
*
|
|||||||||||
|
Sanders
Opportunity Fund LP115†
|
475,971
|
166,950
|
83,475
|
225,546
|
*
|
68
|
Sandy
Valley Two LLC116†**
|
45,000
|
45,000
|
-
|
-
|
-
|
|||||||||||
|
Sanovest
Holdings Ltd.117†
|
577,500
|
250,000
|
125,000
|
202,500
|
*
|
|||||||||||
|
Scott
Andrews
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Second
City Capital Partners I, Limited Partnership118†**
|
1,050,000
|
850,000
|
200,000
|
-
|
-
|
|||||||||||
|
SEP
FBO David M. Underwood Pershing LLC as Custodian†
|
15,000
|
10,000
|
5,000
|
-
|
-
|
|||||||||||
|
SEP
FBO Dwight W. Fate Pershing LLC as Custodian†
|
25,001
|
16,667
|
8,334
|
-
|
-
|
|||||||||||
|
SEP
FBO Kenneth L. Hamilton / Pershing LLC as Custodian
|
7,500
|
5,000
|
2,500
|
-
|
-
|
|||||||||||
|
SEP
FBO Peter G. Sarles Pershing LLC as Custodian
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
SEP
FBO Philip M. Garner Pershing LLC as
Custodian(118A)**
|
40,700
|
40,700
|
-
|
-
|
-
|
|||||||||||
|
SEP
FBO Rick Pease/ Pershing LLC as Custodian†
|
15,000
|
10,000
|
5,000
|
-
|
-
|
|||||||||||
|
SEP
FBO Robert Slanovits Pershing LLC as Custodian†
|
15,000
|
10,000
|
5,000
|
-
|
-
|
|||||||||||
|
SEP
FBO Susan S Lehrer Pershing LLC as Custodian
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
SEP
FBO Thomas Giarraputo Pershing LLC as Custodian
|
84,000
|
56,000
|
28,000
|
-
|
-
|
|||||||||||
|
SEP
FBO William E Grose MD Pershing LLC as Custodian†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Shadow
Creek Capital Partners LP119†
|
300,000
|
200,000
|
100,000
|
-
|
-
|
|||||||||||
|
Sharetron
Limited Partnership120
|
65,000
|
40,000
|
20,000
|
5,000
|
*
|
|||||||||||
|
Shawn
Perger†
|
25,500
|
17,000
|
8,500
|
-
|
-
|
|||||||||||
|
Shawn
T. Kemp
|
60,000
|
40,000
|
20,000
|
-
|
-
|
|||||||||||
|
SLS/PLS
1988 Tr FBO Samantha Leigh Santoski121†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Small
Ventures USA L.P.122
|
33,333
|
33,333
|
-
|
-
|
-
|
|||||||||||
|
Sonya
Messner†
|
33,000
|
22,000
|
11,000
|
-
|
-
|
|||||||||||
|
Stanley
Cohen†(122A)**
|
30,000
|
30,000
|
-
|
-
|
-
|
|||||||||||
|
Stanley
Katz†
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Stephen
Falk, M.D. and Sheila Falk
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Stephen
S. Oswald†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Steve
Harter†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Steve
Horth†
|
19,500
|
13,000
|
6,500
|
-
|
-
|
|||||||||||
|
Steve
Scott
|
99,999
|
66,666
|
33,333
|
-
|
-
|
|||||||||||
|
Steven
Hall/Rebecca Hall
|
51,000
|
34,000
|
17,000
|
-
|
-
|
|||||||||||
|
Steven
R. Elliott†
|
50,001
|
33,334
|
16,667
|
-
|
-
|
|||||||||||
|
Sue
M. Harris Separate Property123
|
96,000
|
50,000
|
25,000
|
21,000
|
*
|
|||||||||||
|
Pinkeye
Lou Blair Estate Trust U/W DTD 6/15/91124
|
50,000
|
33,333
|
16,667
|
-
|
-
|
|||||||||||
|
L
Lehrer TR U/W FBO Benjamin Lehrer DTD 02/22/93125
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
L
Lehrer TR U/W FBO Michael Lehrer DTD 02/22/93126
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Susan
S. Lehrer
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Susan
Sanders Separate Property†
|
37,500
|
25,000
|
12,500
|
-
|
-
|
|||||||||||
|
Buchanan
Advisors Inc. Defined Benefit Plan UA Dtd. 01/01/2002127
|
67,500
|
25,000
|
-
|
30,000
|
*
|
|||||||||||
|
T.
Scott O’Keefe
|
37,500
|
-
|
37,500
|
-
|
-
|
|||||||||||
|
Tanglewood
Family Limited Partnership128†
|
60,000
|
40,000
|
20,000
|
-
|
-
|
|||||||||||
|
Tanya
J. Drury129†
|
120,000
|
80,000
|
40,000
|
-
|
-
|
|||||||||||
|
The
Knuettel Family Trust130
|
25,002
|
16,668
|
8,334
|
-
|
-
|
|||||||||||
|
The
Leland Hirsch Family Partnership LP131†**
|
50,000
|
50,000
|
-
|
-
|
-
|
|||||||||||
|
The
Sarles Family Trust UAD 9/7/00132
|
60,000
|
40,000
|
20,000
|
-
|
-
|
|||||||||||
|
Theseus
Fund LP133
|
1,800,000
|
500,000
|
250,000
|
1,050,000
|
1.1
|
%
|
||||||||||
|
Thomas
Asarch & Barbara Asarch
|
8,333
|
8,333
|
-
|
-
|
-
|
|||||||||||
|
E.
P. Brady Inc. Profit Sharing Plan & Trust134†
|
37,500
|
25,000
|
12,500
|
-
|
-
|
|||||||||||
|
Thomas
W. Custer†
|
37,500
|
25,000
|
12,500
|
-
|
-
|
69
|
The
Estate of Titus H. Harris Jr.
|
124,998
|
83,332
|
41,666
|
-
|
-
|
|||||||||||
|
Tolar
N. Hamblen III†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Tom
Juda & Nancy Juda Living Tr DTD 5/3/95135†
|
249,999
|
166,666
|
83,333
|
-
|
-
|
|||||||||||
|
Tommy
Forrester136†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Tony
Dutt & Bridget Dutt†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
Tracy
D. Stogel†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
Trevor
J. Tomanik†
|
119,988
|
79,992
|
39,996
|
-
|
-
|
|||||||||||
|
TWM
Associates LLC137†
|
99,999
|
66,666
|
33,333
|
-
|
-
|
|||||||||||
|
US
Global Investors — Global Resources Fund138†
|
4,650,000
|
3,100,000
|
1,550,000
|
-
|
-
|
|||||||||||
|
Valerie
B. Lens
|
49,500
|
33,000
|
16,500
|
-
|
-
|
|||||||||||
|
Verne
G. Johnson139†
|
1,712,884
|
100,006
|
50,003
|
1,562,875
|
1.6
|
%
|
||||||||||
|
Victoria
P. Giannukos(139A)**
|
180,060
|
150,000
|
-
|
30,060
|
*
|
|||||||||||
|
Vincent
Vazquez
|
150,000
|
80,000
|
50,000
|
20,000
|
*
|
|||||||||||
|
Vitel
Venture Corp140†**
|
999,999
|
916,666
|
83,333
|
-
|
-
|
|||||||||||
|
VP
Bank (Schweiz) AG141
|
662,550
|
166,700
|
83,350
|
412,500
|
*
|
|||||||||||
|
W.
Roger Clemens, Special Retirement Account†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Weiskopf,
Silver & Co. LP142
|
10,000
|
-
|
10,000
|
-
|
-
|
|||||||||||
|
Wendy
Wolfe Rodrigue & Heather Wolfe Parker†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
Westchase
Investments Group, LLC143
|
51,000
|
34,000
|
17,000
|
-
|
-
|
|||||||||||
|
Whalehaven
Capital Fund Limited144**
|
333,333
|
20,000
|
313,333
|
-
|
-
|
|||||||||||
|
William
D. Bain Jr. and Peggy Brooks Bain†
|
22,500
|
15,000
|
7,500
|
-
|
-
|
|||||||||||
|
William
Edward John Page†
|
45,000
|
30,000
|
15,000
|
-
|
-
|
|||||||||||
|
William
H. Mildren145†
|
24,999
|
16,666
|
8,333
|
-
|
-
|
|||||||||||
|
William
R. Hurt146†
|
25,500
|
17,000
|
8,500
|
-
|
-
|
|||||||||||
|
William
Scott†
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
William
Sockman†
|
30,000
|
20,000
|
10,000
|
-
|
-
|
|||||||||||
|
William
T. Criner & Frances E. Criner†(146A)**
|
24,999
|
24,999
|
-
|
-
|
-
|
|||||||||||
|
Wolf
Canyon, Ltd. — Special147
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Zadok
Jewelers148
|
150,000
|
100,000
|
50,000
|
-
|
-
|
|||||||||||
|
Zadok
Jewelry Inc. 401K Profit Sharing Plan149
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
ZLP
Master Opportunity Fund, Ltd.150
|
1,250,000
|
500,000
|
750,000
|
-
|
-
|
|||||||||||
|
1053361
Alberta Ltd.151†
|
491,865
|
100,000
|
50,000
|
341,865
|
*
|
|||||||||||
|
719906
BC Ltd.
|
25,000
|
-
|
25,000
|
-
|
-
|
|||||||||||
|
Robert
Pedlow
|
200,000
|
133,333
|
66,667
|
-
|
-
|
|||||||||||
|
Crosby
Capital LLC152†
|
870,647
|
870,647
|
-
|
-
|
-
|
|||||||||||
|
OTA
LLC153
|
15,000
|
-
|
15,000
|
-
|
-
|
|||||||||||
|
Lakeview
Master Fund, LTD154
|
243,805
|
-
|
243,805
|
-
|
-
|
|||||||||||
|
John
D. Long, Jr.
155
|
684,265
|
30,575
|
18,336
|
635,354
|
*
|
|
*
|
|
Less
than 1.0%.
|
|
**
|
Shares
of common stock being offered and shares which are subject to warrants
reflect warrant exercises between February 11, 2008 and April 10,
2008.
|
|
|
|
|
|
|
(a)
|
Pursuant
to Rule 416 of the Securities Act, this registration statement shall
also
cover any additional shares of common stock that become issuable
in
connection with the shares registered for sale hereby by reason of
any
stock dividend, stock split, recapitalization or other similar transaction
effected without the receipt of consideration that results in an
increase
in the number of our outstanding shares of common
stock.
|
|
|
(b)
|
The
shares listed in this column represent shares of our common stock
issuable
upon exercise in full of outstanding warrants initially issued with
an
exercise price of $1.75 per share in our June 2006 Offering. 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 per
share.
|
|
|
(c)
|
The
shares listed in this column include shares of common stock outstanding
and shares of common stock which are issuable upon the exchange of
exchangeable shares of Goldstrike Exchange Co.
|
|
|
(d)
|
|
Assumes
all of the shares of common stock and all shares of common stock
underlying warrants registered in this offering are sold in the
offering.
|
|
(e)
|
Warrant
exercised for 200,000 shares of common stock between February 11,
2008 and
April 10, 2008.
|
|
|
†
|
Based
on information provided as of January 10, 2007. We were unable to
obtain
updated information from this selling stockholder.
|
|
70
|
1
|
|
Elisa
Medhus, trustee, has the power to vote and dispose of the shares
being
registered on behalf of Atlantis Company Profit Sharing Plan. This
selling
stockholder is an affiliate of a broker-dealer. Warrant
exercised for 30,000 shares of common stock between February 11,
2008 and
April 10, 2008.
|
|
|
|
|
|
2
|
|
The
sole stockholder of Bancor, Inc. is James A. Banister, who is deemed
to
beneficially own the shares held by Bancor, Inc.
|
|
|
|
|
|
3
|
|
Mr. Morris
is an affiliate of a broker-dealer. Mr. Morris beneficially owns
62,500 shares of common stock and warrants to acquire an additional
31,250
shares of common stock at an exercise price of $1.25 per
share.
|
|
|
|
|
|
4
|
|
Richard
Benedek has the power to vote and dispose of the common shares being
registered on behalf of Benedek Investment Group, LLC.
|
|
|
|
|
|
5
|
|
Evan
Smith, portfolio manager, has the power to vote and dispose of the
common
shares being registered on behalf of GMP Securities Inc I/T/F
7TO-2209F.
|
|
|
|
|
|
6
|
|
Paul
Kessler, director of Bristol Investment Fund, Ltd., has the power
to vote
and dispose of the common shares being registered on behalf of Bristol
Investment Fund, Ltd.
|
|
7
|
This
selling stockholder is an affiliate of a broker-dealer. Warrant exercised
for 8,500 shares of common stock between February 11, 2008 and April
10, 2008.
|
|
|
|
|
|
|
8
|
|
Stanley
Katz has the power to vote and dispose of the common shares being
registered on behalf of Brunella Jacs LLC.
|
|
|
|
|
|
9
|
|
Heights
Capital Management, Inc., the authorized agent of Capital Ventures
International, has discretionary authority to vote and dispose of
the
shares held by Capital Ventures International and may be deemed to
be the
beneficial owner of the units held by Capital Ventures International.
Martin Kobinger, in his capacity as Investment Manager of Heights
Capital
Management, Inc., may also be deemed to have investment discretion
and
voting power over the common shares being registered on behalf of
Capital
Ventures International. Mr. Kobinger disclaims any such beneficial
ownership of the common shares held by Capital Ventures International.
This selling stockholder is an affiliate of a broker-dealer. Warrant
exercised for 500,000 shares of common stock between February 11,
2008 and
April 3, 2008.
|
|
10
|
Eric
Carlson, President and Secretary of Carmax Enterprises Corporation,
and
Grace To have shared voting control and investment discretion over
the
common shares being registered on behalf of Carmax Enterprises
Corporation.
|
|
|
|
|
|
|
11
|
|
Sandell
Asset Management Corp. is the investment manager of Castlerigg Master
Investment Ltd. (“Castlerigg”) and has shared voting and dispositive power
over the securities owned by Castlerigg. Sandell Asset Management
Corp.
and Thomas E. Sandell, its sole shareholder, disclaim beneficial
ownership
of the securities owned by Castlerigg.
|
|
|
|
|
|
12
|
|
John
Ziegelman, as president of Carpe Diem Capital Management LLC, the
investment advisor for CD Investment Partners, Ltd., has voting and
investment power over the common shares being registered on behalf
of CD
Investment Partners, Ltd. Warrant exercised for 333,334 shares of
common
stock between February 11, 2008 and April 10, 2008.
|
|
|
|
|
|
13
|
|
Mr. Oakes
also holds 249,981 shares of common stock and warrants to acquire
an
additional 124,991 shares of common stock at an exercise price of
$1.25
per share, acquired in the First 2005 Offering.
|
|
|
|
|
|
14
|
|
Robert
and Anetta Chester, trustees, have the power to vote and dispose
of the
common shares being registered on behalf of Chester Family 1997 Trust
UAD
12/09/1997.
|
|
|
|
|
|
15
|
|
Christian
Thomas Swinbank, trustee, has the power to vote and dispose of the
common
shares being registered on behalf of Christian Thomas Swinbank UAD
03/14/06.
|
| 15A | Warrant exercised for 16,667 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
|
|
|
|
16
|
|
N.E.F.
Bodnar-Horvath, director of City and Claremont Capital Assets Limited,
has
the power to vote and dispose of the common shares being registered
on
behalf of City and Claremont Capital Assets Limited.
|
|
|
|
|
|
17
|
|
Mitchell
P. Kopin, President of Downsview Capital, Inc., the General Partner
of
Cranshire Capital, L.P., has sole voting control and investment discretion
over securities held by Cranshire Capital, L.P. Each of Mitchell
P. Kopin
and Downsview Capital, Inc. disclaims beneficial ownership of the
shares
held by Cranshire Capital, L.P.
|
|
|
|
|
|
18
|
|
Mr. Foster
also holds 24,981 shares of common stock and warrants to acquire
an
additional 12,491 shares of common stock at an exercise price of
$1.25 per
share, and 79,365 exchangeable shares issued on November 10, 2005 in
connection with the share exchange.
|
|
|
|
|
|
19
|
|
Mr. Coffield
also holds 29,985 shares of common stock and warrants to acquire
an
additional 14,993 shares of common stock at an exercise price of
$1.25 per
share, and 1,689,683 exchangeable shares issued on November 10, 2005
in connection with the share exchange. Mr. Coffield serves as our
President, Chief Executive Officer and as a member of the board of
directors.
|
|
|
|
|
|
20
|
|
Mr. Dane
also holds 499,985 shares of common stock and warrants to acquire
an
additional 249,993 shares of common stock at an exercise price of
$1.25
per share.
|
|
|
|
|
|
21
|
|
Mr. Sanders
is an affiliate of a broker-dealer. Mr. Sanders also holds 250,000
shares of common stock and warrants to acquire an additional 125,000
shares of common stock at an exercise price of $1.25 per
share.
|
|
|
|
|
|
22
|
|
James
Garson has the power to vote and dispose of the common shares being
registered on behalf of Datavision Computer Video, Inc.
|
| 22A | Warrant exercised for 8,334 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
23
|
|
David
Malm has the power to vote and dispose of the common shares being
registered on behalf of David Malm Anaesthesia
Inc.
|
71
|
24
|
|
The
investment manager of DKR SoundShore Oasis Holding Fund Ltd. (the
“Fund”)
is DKR Oasis Management Company LP (the “Investment Manager”). The
Investment Manager has the authority to do any and all acts on behalf
of
the Fund, including voting any shares held by the Fund. Mr. Seth
Fischer is the managing partner of Oasis Management Holdings LLC,
one of
the general partners of the Investment Manager. Mr. Fischer has
ultimate responsibility for trading with respect to the Fund.
Mr. Fischer disclaims beneficial ownership of the
shares.
|
|
|
|
|
|
25
|
|
Includes
158,730 exchangeable shares issued on November 10, 2005 in connection
with the share exchange. Mr. Wright also holds 250,000 shares of
common stock and warrants to acquire an additional 250,000 shares
of
common stock at an exercise price of $1.25 per share.
|
|
|
|
|
|
26
|
|
Mr.
and Mrs. Weir also hold 62,500 shares of common stock and warrants to
acquire an additional 31,250 shares of common stock at an exercise
price
of $1.25 per share. Also includes 10,000 shares of common stock and
warrants to acquire an additional 5,000 shares of common stock at
an
exercise price of $1.75 per share, held by IRA for the benefit of
Julie
Weir/Pershing LLC as Custodian, acquired in the June, 2006 private
offering. This selling stockholder is a broker-dealer.
|
|
|
|
|
|
27
|
|
Gary
Duke and Laura Duke, trustees, have the power to vote and dispose
of the
common shares being registered on behalf of the Duke Family Trust
UAD
03/08/2006.
|
|
|
|
|
|
28
|
|
Mr. Antonsen
also holds warrants to acquire 20,000 shares of common stock at an
exercise price of $1.25 per share, acquired in the sale of units
to
accredited investors we conducted on October 27, 2005 and
December 14, 2005 (the “Second 2005 Offering”).
|
|
|
|
|
|
29
|
|
Mr. Muchowski
also holds 158,730 exchangeable shares issued on November 10, 2005 in
connection with the share exchange.
|
|
|
|
|
|
30
|
|
Mitchell
Levine has the power to vote and dispose of the common shares being
registered on behalf of Enable Growth Partners LP. Warrant exercised
for
375,000 shares of common stock between February 11, 2008 and April
10,
2008.
|
|
|
|
|
|
31
|
|
Mitchell
Levine has the power to vote and dispose of the common shares being
registered on behalf of Enable Opportunity Partners LP. Warrant exercised
for 75,000 shares of common stock between February 11, 2008 and April
10,
2008.
|
|
|
|
|
|
32
|
|
Frederick
Berdon, as the general partner, has the power to vote and dispose
of the
common shares being registered on behalf of F. Berdon Co. L.P. This
selling stockholder is an affiliate of a broker-dealer.
|
|
|
|
|
|
33
|
|
Mario
Faccone has the power to vote and dispose of the common shares being
registered on behalf of Faccone Enterprises, and also holds warrants
to
acquire 15,625 shares of common stock at an exercise price of $1.25
per
share.
|
|
|
|
|
|
34
|
|
Frank
J. Metyko Jr. & Mark J. Metyko & Kurt F. Metyko, trustees, have
the power to vote and dispose of the common shares being registered
on
behalf of the Frank Metyko Residuary Trust.
|
|
|
|
|
|
35
|
|
Mr.
and Mrs. Hoy also hold warrants to acquire 15,619 shares of common
stock at an exercise price of $1.25 per share. Warrant exercised
for 8,500 shares of common stock between February 11, 2008 and April
10, 2008.
|
|
|
|
|
|
36
|
|
Mr. Ball
is an affiliate of a broker-dealer. Mr. Ball also holds 62,500 shares
of common stock and warrants to acquire an additional 31,250 shares
of
common stock at an exercise price of $1.25 per share.
|
|
|
|
|
|
37
|
|
The
trustee of Besser Kapital Fund Ltd. Is Gottbetter & Partners, LLP.
Adam Gottbetter, as partner of Gottbetter & Partners LLP, has the
power to vote and dispose of the common shares being registered on
behalf
of Besser Kapital Fund Ltd.
|
|
|
|
|
|
38
|
|
J.
Livingston Kosberg has the power to vote and dispose of the common
shares
being registered on behalf of Gran Tierra Investments.
|
|
|
|
|
|
39
|
|
Grant
Sims, custodian, has the power to vote and dispose of the common
shares
being registered on behalf of the Eric R. Sims UTMA TX.
|
|
|
|
|
|
40
|
|
Grant
Sims, custodian, has the power to vote and dispose of the common
shares
being registered on behalf of the Ryan S. Sims UTMA TX.
|
|
|
|
|
|
41
|
|
Grant
Sims, custodian, has the power to vote and dispose of the common
shares
being registered on behalf of Scott A. Sims UTMA TX.
|
|
|
|
|
|
42
|
|
Mr. Hodgins
also holds warrants to acquire 15,619 shares of common stock at an
exercise price of $1.25 per share.
|
|
|
|
|
|
43
|
|
Mr. Sedun
also holds warrants to acquire 62,491 shares of common stock at an
exercise price of $1.25 per share.
|
|
44
|
|
William
Troy has the power to vote and dispose of the common shares being
registered on behalf of Greywolf Capital Overseas Fund
LP.
|
|
|
|
|
|
45
|
|
William
Troy has the power to vote and dispose of the common shares being
registered on behalf of Greywolf Capital Partner II LP.
|
|
|
|
|
|
46
|
|
Harborview
Master Fund L.P. is a master fund in a master-feeder structure whose
general partner is Harborview Advisors LLC. Richard Rosenblum and
David
Stefansky are the managers of Harborview Advisors LLC and have the
power
to vote and dispose of the common shares being registered on behalf
of
Harborview Master Fund L.P. Messrs. Rosenblum and Stefansky disclaim
beneficial ownership of the shares being registered
hereunder.
|
72
|
47
|
This
selling stockholder is a broker-dealer and an affiliate of a
broker-dealer.
|
|
|
|
|
|
|
48
|
|
Jeremy
Spring has the power to vote and dispose of the common shares being
registered on behalf of Hollyvale Limited, and also holds warrants
to
acquire 10,000 shares of common stock at an exercise price of $1.25
per
share.
|
|
48A
|
Warrant exercised for 33,333 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
|
|
|
|
49
|
|
Yoav
Roth and John Doscas have the power to vote and dispose of common
shares
being registered on behalf of Hudson Bay Fund, LP. Both Yoav Roth
and John
Doscas isclaim beneficial ownership of shares held by Hudson Bay
Fund,
LP.
|
|
|
|
|
|
50
|
|
Yoav
Roth and John Doscas have the power to vote and dispose of common
shares
being registered on behalf of Hudson Bay Overseas Fund, Ltd. Both
Yoav
Roth and John Doscas isclaim beneficial ownership of shares held
by Hudson
Bay Overseas Fund, Ltd.
|
|
|
|
|
|
51
|
|
Noel
Humphrey has the power to vote and dispose of the common shares being
registered on behalf of the Humphrey Family Limited
Partnership.
|
|
|
|
|
|
52
|
|
John
Laurie Hunter has the power to vote and dispose of the shares being
registered on behalf of the Hunter & Co. LLC Defined Pension
Plan.
|
|
|
|
|
|
53
|
|
George
Crawford, as president of Ilex Group, Inc., the general partner for
Ilex
Investments, LP, has voting and investment power over the common
shares
being registered on behalf of Ilex Investments, LP.
|
|
|
|
|
|
54
|
|
Interlachen
Capital Group, LP is the trading manager of Investcorp Interlachen
Multi-Strategy Master Fund Limited and has voting and investment
discretion over securities held by Investcorp Interlachen Multi-Strategy
Master Fund Limited. Andrew Fraley and Jonathan Havice, as the managing
members of the general partner of Interlachen Capital Group LP,
have
shared voting control and investment discretion over securities held
by
Investcorp Interlachen Multi-Strategy Master Fund Limited. Andrew
Fraley
and Jonathan Havice disclaim beneficial ownership of the securities
held
by Investcorp Interlachen Multi-Strategy Master Fund Limited. This
selling
stockholder is an affiliate of a broker-dealer.
|
|
55
|
|
This
selling stockholder is an affiliate of a broker-dealer.
|
|
56
|
|
This
selling stockholder is a broker-dealer.
|
| 56A | Warrant exercised for 15,000 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
57
|
|
This
selling stockholder is a broker-dealer and an affiliate of a
broker-dealer. Warrant exercised for 8,333 shares of common stock
between
February 11, 2008 and April 10, 2008.
|
|
|
|
|
|
58
|
|
This
selling stockholder is an affiliate of a broker-dealer. Warrant exercised
for 8,333 shares of common stock between February 11, 2008 and April
10,
2008.
|
| 58A | Warrant exercised for 8,333 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
59
|
|
Joshua
Silverman has the power to vote and dispose of the common shares
being
registered on behalf of Iroquois Master Fund, Ltd. Mr. Silverman
disclaims beneficial ownership of the shares held by Iroquois Master
Fund
Ltd.
|
|
60
|
|
James
B. Terrell, trustee, has the power to vote and dispose of the shares
being
registered on behalf of the James B. Terrell Trust UAD
09/12/90.
|
|
61
|
|
This
selling stockholder is a broker-dealer. Warrant exercised for 8,333
shares
of common stock between February 11, 2008 and April 10,
2008.
|
|
|
|
|
|
62
|
|
Jeffrey
J. Orchen, trustee, has the power to vote and dispose of the common
shares
being registered on behalf of the Jeffrey J. Orchen P/S Plan DTD
1/1/95.
|
|
|
|
|
|
63
|
|
Includes
100,000 shares of common stock and warrants to acquire an additional
50,000 shares of common stock at an exercise price of $1.25 per share,
acquired in the Second 2005 Offering. Includes 1,688,889 exchangeable
shares issued on November 10, 2005 in connection with the share
exchange. Mr. Scott serves as our Chairman of the Board, and also
holds 349,981 shares of common stock and warrants to acquire an additional
224,991 shares of common stock at an exercise price of $1.25 per
share,
acquired in the First 2005 Offering.
|
| 63A | Warrant exercised for 10,000 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
64
|
|
John
and Jodi Malanga are affiliates of a broker-dealer. Includes 17,000
shares
of common stock and warrants to acquire an additional 8,500 shares
of
common stock at an exercise price of $1.75 per share, held by IRA
for the
benefit of Jodi Malanga/Pershing LLC as Custodian, acquired in the
June,
2006 private offering. Mr. and Mrs. Malanga also hold 25,000 shares
of common stock and warrants to acquire an additional 12,500 shares
of
common stock at an exercise price of $1.25 per share, acquired in
the
First 2005 Offering.
|
|
|
|
|
|
65
|
|
John
Jeffrey Mundy, trustee, has the power to vote and dispose of the
common
shares being registered on behalf of the Mundy 2000 Gift Trust Ltd
01/01/2000.
|
|
|
|
|
|
66
|
|
This
selling stockholder is a broker-dealer.
|
|
|
|
|
|
67
|
|
Don
Weir, trustee, has the power to vote and dispose of the common shares
being registered on behalf of the Katherine U. Sanders Children Trust
Dtd.
2003.
|
|
|
|
|
|
68
|
|
Mr. Wong
also holds warrants to acquire 15,625 shares of common stock at an
exercise price of $1.25 per share, acquired in the First 2005
Offering.
|
|
69
|
|
Mr. Min
also holds 5,000 shares of common stock and warrants to acquire an
additional 2,500 shares of common stock at an exercise price of $1.25
per
share, acquired in the First 2005
Offering.
|
73
|
70
|
|
Ari
Levy and Mike Nicolas have the power to vote and dispose of the common
shares being registered on behalf of Lakeview Fund, LP. Warrant exercised
for 22,861 shares of common stock between February 11, 2008 and April
10,
2008.
|
|
|
|
|
|
71
|
|
Tracy
Stogel, trustee, has the power to vote and dispose of the common
shares
being registered on behalf of the Lorain S. Davis Trust U/A DTD
11/10/1986.
|
|
|
|
|
|
72
|
|
Lloyd
Guenther has the power to vote and dispose of the common shares being
registered on behalf of LSM Business Services, Ltd., and also holds
31,250
shares of common stock and warrants to acquire an additional 15,625
shares
of common stock at an exercise price of $1.25 per share, acquired
in the
Second 2005 Offering.
|
|
|
|
|
|
73
|
|
Mr. Chartrand
also holds 158,730 exchangeable shares issued on November 10, 2005 in
connection with the share exchange.
|
|
|
|
|
|
74
|
|
Luke
J. Drury has the power to vote and dispose of the common shares being
registered on behalf of the Luke J. Drury Non-Exempt
Trust.
|
|
|
|
|
|
75
|
|
Marc
S. Powell and Lori T. Powell, trustees, have the power to vote and
dispose
of the common shares being registered on behalf of The Powell Family
Trust
U/A DTD 5/7/04.
|
|
|
|
|
|
76
|
|
Mark
J. Drury, trustee, has the power to vote and dispose of the common
shares
being registered on behalf of the Mark J. Drury Non-Exempt
Trust.
|
| 76A | Warrant exercised for 16,667 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
|
|
|
|
77
|
|
Robert
Alpert, president of the Danro Corporation, the general partner of
Markus
Ventures L.P., has the power to vote and dispose of the common shares
being registered on behalf of Markus Ventures L.P.
|
| 77A | Warrant exercised for 8,333 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
|
|
|
|
78
|
|
Matthew
Drury, trustee, has the power to vote and dispose of the common shares
being registered on behalf of the Matthew J. Drury Non-Exempt
Trust.
|
|
|
|
|
|
79
|
|
Mr. Wei
also holds 1,689,683 exchangeable shares issued on November 10, 2005
in connection with the share exchange. Mr. Wei serves as our
Vice-President, Operations.
|
|
|
|
|
|
80
|
|
Michael
Mazzei, as trustee for the Michael Mazzei Revocable Trust, a member
of
Mazzei Holding, LLC, has the power to vote and dispose of the common
shares being registered on behalf of Mazzei Holding, LLC. Warrant
exercised for 16,667 shares of common stock between February 11,
2008 and
April 10, 2008.
|
|
|
|
|
|
81
|
|
Maureen
McCarron, general partner of McCarron Family Partners Ltd., has the
power
to vote and dispose of the common shares being registered on behalf
of
McCarron Family Partners Ltd.
|
| 81A | Warrant exercised for 3,000 shares of common stock between February 11, 2008 and April 10, 2008. | |
| 81B | Warrant exercised for 19,500 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
|
|
|
| 81C | Warrant exercised for 66,667 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
82
|
|
Mr. Parasake
also holds 25,000 shares of common stock and warrants to acquire
an
additional 12,500 shares of common stock at an exercise price of
$1.25 per
share, acquired in the Offering.
|
|
|
|
|
|
83
|
|
This
selling stockholder is a broker-dealer.
|
|
|
|
|
|
84
|
|
Jan
E. Holbrook, director of Middlemarch Partners Limited, has the power
to
vote and dispose of the common shares being registered on behalf
of
Middlemarch Partners Limited.
|
| 84A | Warrant exercised for 10,000 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
|
|
|
|
85
|
|
Joseph
Strubel has the power to vote and dispose of the common shares being
registered on behalf of Millennium Global High Yield Fund
Limited.
|
|
|
|
|
|
86
|
|
Joseph
Strubel has the power to vote and dispose of the common shares being
registered on behalf of Millennium Global Natural Resources Fund
Limited.
|
|
|
|
|
|
87
|
|
Svein
Garberg has the power to vote and dispose of the common shares being
registered on behalf of MP Pensjon.
|
|
|
|
|
|
88
|
|
Ms. Smith
served as a member of our board of directors until March 27, 2008.
Includes 433,906 shares of common stock and warrants to acquire an
additional 197,905 shares of common stock at an exercise price of
$1.25
per share, acquired in the First 2005 Offering.
|
|
|
|
|
|
89
|
|
Allan
Williams has the power to vote and dispose of the common shares being
registered on behalf of Neon Rainbow Holdings Ltd.
|
|
|
|
|
|
90
|
|
William
McCluskey has the power to vote and dispose of the common shares
being
registered on behalf of Nina Holdings, LLC.
|
|
|
|
|
|
91
|
|
Shahid
Ahmed has the power to vote and dispose of the common shares being
registered on behalf of Northcity Investments Corp.
|
|
|
|
|
|
92
|
|
Joan
Fingerhut, trustee, has the power to vote and dispose of the common
shares
being registered on behalf of the P&J Fingerhut Family Trust, John
Tuschman Agent UDPA.
|
|
|
|
|
|
92A
|
Warrant exercised for 8,333 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
93
|
|
Pauline
H. Gorman Trust, trustee, has the power to vote and dispose of the
common
shares being registered on behalf of Pauline H. Gorman Trust UTD
3/10/93,
UAD 03/10/93.
|
|
|
|
|
|
94
|
|
Joseph
Maguire has the power to vote and dispose of the common shares being
registered on behalf of Penn Capital Management Capital Structure
Opportunities Fund, LP.
|
74
|
95
|
|
Includes
1,587,302 exchangeable shares issued on November 10, 2005 in
connection with the share exchange. Mr. Dawson, is a member of our
board of directors, is the sole owner of Perfco Investments Ltd.
Mr. Dawson has sole investment and voting power over the shares of
common stock owned by Perfco which also holds 350,000 shares of common
stock and warrants to acquire an additional 175,000 shares of common
stock
at an exercise price of $1.25 per share, acquired in the First 2005
Offering. In addition, Mr. Dawson directly holds 101,587 exchangeable
shares issued on November 10, 2005 in connection with the share
exchange and holds 200,000 shares of common stock and warrants to
acquire
an additional 100,000 shares of common stock at an exercise price
of $1.25
per share, acquired in the First 2005 Offering. Mr. Dawson disclaims
beneficial ownership of 158,730 exchangeable shares issued on
November 10, 2005 in connection with the share exchange, held by
Mr. Dawson’s spouse.
|
|
|
|
|
|
96
|
|
Paul
Sicotte has the power to vote and dispose of the common shares being
registered on behalf of PGS Holdings Ltd.
|
|
|
|
|
|
97
|
|
Mitchell
Levine has the power to vote and dispose of the common shares being
registered on behalf of Pierce Diversified Strategy Master Fund LLC,
Ena.
Warrants exercised for 50,000 shares of common stock between February
11,
2008 and April 10, 2008.
|
|
|
|
|
|
98
|
|
Matthew
G. Stuller, Sr. has the power to vote and dispose of the common shares
being registered on behalf of Platinum Business Investment Company,
Ltd.
|
|
|
|
|
|
99
|
|
Gary
Duke, president of Professional Billing Ltd., has the power to vote
and
dispose of the common shares being registered on behalf of Professional
Billing Ltd.
|
|
|
|
|
|
100
|
|
John
Seaman has the power to vote and dispose of the common shares being
registered on behalf of QRS Holdings Ltd.
|
|
|
|
|
|
101
|
|
Arild
Eide is a Portfolio Manager at RAB Capital PLC, the Investment Manager
of
RAB American Opportunities Fund Limited. By virtue of his position
at RAB
Capital PLC, Mr. Eide is deemed to hold investment power and voting
control over the common shares being registered on behalf of RAB
American
Opportunities Fund Limited.
|
|
|
|
|
|
102
|
|
Mr. Orunesu
also holds 1,689,683 exchangeable shares issued on November 10, 2005
in connection with the share exchange. Mr. Orunesu serves as our
President of our activities in Argentina.
|
|
|
|
|
|
103
|
|
Francis
Mailhot has the power to vote and dispose of the common shares being
registered on behalf of Rahn and Bodmer.
|
|
104
|
This
selling stockholder is an affiliate of a broker-dealer.
|
|
|
|
|
|
|
105
|
|
Mr. Machin
also holds 25,000 shares of common stock and warrants to acquire
an
additional 12,500 shares of common stock at an exercise price of
$1.25 per
share, acquired in the First 2005 Offering. Warrant exercised
for 8,750 shares of common stock between February 11, 2008 and April
10, 2008.
|
|
|
|
|
|
106
|
|
Includes
16,666 shares of common stock and warrants to acquire an additional
8,333
shares of common stock at an exercise price of $1.75 per share, acquired
in the June, 2006 private offering. Paula Santoski, trustee, has
the power
to vote and dispose of the common shares being registered on behalf
of RJS
Jr./PLS 1992 Trust FBO Robert J. Santoski Jr.
|
|
|
|
|
|
107
|
|
Mr. Steele
also holds 75,000 shares of common stock and warrants to acquire
an
additional 37,500 shares of common stock at an exercise price of
$1.25 per
share, acquired in the First 2005 Offering.
|
|
|
|
|
|
108
|
|
Mr. Macleod
also holds 30,000 shares of common stock and warrants to acquire
an
additional 15,000 shares of common stock at an exercise price of
$1.25 per
share, acquired in the First 2005 Offering.
|
|
|
|
|
|
109
|
|
Stuart
Shapiro, general partner, has the power to vote and dispose of the
common
shares being registered on behalf of Rock Associates.
|
|
|
|
|
|
110
|
|
Albert
Rosen, trustee, has the power to vote and dispose of the common shares
being registered on behalf of the Rosen Family Trust.
|
|
|
|
|
|
111
|
|
Ms. Santos
also holds warrants to acquire 15,625 shares of common stock at an
exercise price of $1.25 per share, acquired in the First 2005
Offering.
|
|
|
|
|
|
112
|
|
Aryeh
Rubin, trustee, has the power to vote and dispose of the common shares
being registered on behalf of the Rubin Children Trust.
|
|
|
|
|
|
113
|
|
This
selling stockholder is an affiliate of a broker-dealer.
|
|
|
|
|
|
114
|
|
Sanders
Opportunity Fund (Institutional) LP is an affiliate of a broker-dealer.
Don Sanders has the power to vote and dispose of the common shares
being
registered on behalf of Sanders Opportunity Fund (Inst) LP, and also
holds
480,886 shares of common stock and warrants to acquire an additional
240,443 shares of common stock at an exercise price of $1.25 per
share,
acquired in the First 2005 Offering.
|
|
|
|
|
|
115
|
|
Sanders
Opportunity Fund LP is an affiliate of a broker-dealer. Don Sanders
has
the power to vote and dispose of the common shares being registered
on
behalf of Sanders Opportunity Fund LP, and also holds 150,364 shares
of
common stock and warrants to acquire an additional 75,182 shares
of common
stock at an exercise price of $1.25 per share, acquired in the First
2005
Offering.
|
|
|
|
|
|
116
|
|
Robert
T. Walsh, managing member, has the power to vote and dispose of the
common
shares being registered on behalf of Sandy Valley Two LLC. Warrant
exercised for 15,000 shares of common stock between February 11,
2008 and
April 10, 2008.
|
|
117
|
|
Includes
72,500 shares of common stock and warrants to acquire an additional
36,250
shares of common stock at an exercise price of $1.25 per share, acquired
in the Second 2005 Offering. Tom and Hydri Kusumoto have the power
to vote
and dispose of the common shares being registered on behalf of Sanovest
Holdings Ltd. And also holds 62,500 shares of common stock and warrants
to
acquire an additional 31,250 shares of common stock at an exercise
price
of $1.25 per share, acquired in the First 2005
Offering.
|
|
|
|
|
|
118
|
|
Sam
Belzberg, president of Second City Capital Partners I LP, has the
power to
vote and dispose of the common shares being registered on behalf
of Second
City Capital Partners I LP. Warrant exercised for 150,000 shares of
common stock between February 11, 2008 and April 10,
2008.
|
|
118A
|
Warrant exercised for 13,567 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
119
|
|
Christopher
Giarraputo, managing member of Shadow Creek Capital Management LLC,
the
general partner of Shadow Creek Capital Partners LP, has the power
to vote
and dispose of the common shares being registered on behalf of Shadow
Creek Capital Partners LP.
|
|
|
|
|
|
120
|
|
John
Hazleton, general partner of Sharetron Limited Partnership has the
power
to vote and dispose of the common shares being registered on behalf
of
Sharetron Limited Partnership.
|
|
|
|
|
|
121
|
|
Paula
Santoski, trustee, has the power to vote and dispose of the common
shares
being registered on behalf of SLS/PLS 1988 Tr FBO Samantha Leigh
Santoski.
|
|
|
|
|
|
122
|
|
William
D. Perkins III, president of Small Ventures U.S.A. LP, has the power
to
vote and dispose of the common shares being registered on behalf
of Small
Ventures U.S.A LP.
|
| 122A | Warrant exercised for 10,000 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
|
|
|
|
123
|
|
This
selling stockholder is an affiliate of a broker-dealer.
|
|
|
|
|
|
124
|
|
Sue
Minton Harris, trustee, has the power to vote and dispose of the
common
shares being registered on behalf of Pinkeye Lou Blair Estate Trust
U/W
DTD 6/15/91. This selling stockholder is an affiliate of a
broker-dealer.
|
|
|
|
|
|
125
|
|
Susan
Lehrer, trustee, has the power to vote and dispose of the common
shares
being registered on behalf of the L Lehrer TR U/W FBO Benjamin Lehrer
DTD
02/22/93.
|
|
|
|
|
|
126
|
|
Susan
Lehrer, trustee, has the power to vote and dispose of the common
shares
being registered on behalf of the L Lehrer TR U/W FBO Michael Lehrer
DTD
02/22/93.
|
|
|
|
|
|
127
|
|
Includes
warrants to acquire 12,500 shares of common stock at an exercise
price of
$1.25 per share, acquired in the First 2005 Offering. T. Buchanan
& J.
Buchanan, trustees, have the power to vote and dispose of the common
shares being registered on behalf of Buchanan Advisors Inc. Defined
Benefit Plan UA Dtd. 01/01/2002.
|
|
|
|
|
|
128
|
|
John
Burley has the power to vote and dispose of the common shares being
registered on behalf of Tanglewood Family Limited
Partnership.
|
|
|
|
|
|
129
|
|
Also
includes 30,000 shares of common stock and warrants to acquire an
additional 15,000 shares of common stock at an exercise price of
$1.75 per
share held by the Tanya Jo Drury Trust, acquired in the June, 2006
private
offering. Mr. Don A. Sanders is the trustee of the Tanya Jo Drury
Trust.
|
|
|
|
|
|
130
|
|
Francis
P. Knuettel has the power to vote and dispose of the common shares
being
registered on behalf of the Knuettel Family Trust.
|
|
|
|
|
|
131
|
|
Leland
Hirsch, trustee of the Leland Hirsch Revocable Trust, which trust
is a
member of Hirsch Holding, LLC, which is the general partner of The
Leland
Hirsch Family Partnership LP, has the power to vote and dispose of
the
common shares being registered on behalf of The Leland Hirsch Family
Partnership LP. Warrant exercised for 16,667 shares of common stock
between February 11, 2008 and April 10, 2008.
|
|
|
|
|
|
132
|
|
Peter
Sarles and Elizabeth Sarles, trustees, have the power to vote and
dispose
of the common shares being registered on behalf of The Sarles Family
Trust
UAD 9/7/00.
|
|
|
|
|
|
133
|
|
James
Corfman has the power to vote and dispose of the common shares being
registered on behalf of Theseus Fund.
|
|
|
|
|
|
134
|
|
Thomas
Brady and Daniel Brady have the power to vote and dispose of the
common
shares being registered on behalf of E. P. Brady Inc. Profit Sharing
Plan
& Trust.
|
|
|
|
|
|
135
|
|
Tom
Juda and Nancy Juda, co-trustees, have the power to vote and dispose
of
the common shares being registered on behalf of Tom Juda & Nancy Juda
Living Tr DTD 5/3/95.
|
|
|
|
|
|
136
|
|
This
selling stockholder is an affiliate of a broker-dealer.
|
|
|
|
|
|
137
|
|
Scott
Stone, manager, has the power to vote and dispose of the common shares
being registered on behalf of TWM Associates, LLC.
|
|
|
|
|
|
138
|
|
Evan
Smith, portfolio manager, has the power to vote and dispose of the
common
shares being registered on behalf of US Global Investors — Global
Resources Fund.
|
76
|
139
|
|
Includes
895,238 exchangeable shares issued on November 10, 2005 in connection
with the share exchange. Mr. Johnson serves as a member of our board
of directors, and also holds 124,985 shares of common stock and
warrants
to acquire an additional 62,493 shares of common stock at an exercise
price of $1.25 per share, acquired in the First 2005 Offering.
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 exchangeable shares issued on November 10, 2005
in connection with the share exchange.
|
| 139A | Warrant exercised for 50,000 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
|
|
|
|
140
|
|
Mark
Tompkins has the power to vote and dispose of the common shares being
registered on behalf of Vitel Ventures. Warrant exercised for 250,000
shares of common stock between February 11, 2008 and April 10,
2008.
|
|
|
|
|
|
141
|
|
Daniel
Lacher has the power to vote and dispose of the common shares being
registered on behalf of VP Bank (Schweiz) AG and also holds 100,000
shares
of common stock and warrants to acquire an additional 312,500 shares
of
common stock at an exercise price of $1.25 per share, acquired in
the
First 2005 Offering.
|
|
|
|
|
|
142
|
|
William
Silver has the power to vote and dispose of the common shares being
registered on behalf of Weiskopf, Silver & Co. LP. This selling
stockholder is a broker-dealer.
|
|
|
|
|
|
143
|
|
David
Harvey, Jr. and Joe Cleary have the power to vote and dispose of
the
common shares being registered on behalf of Westchase Investments
Group
LLC.
|
|
|
|
|
|
144
|
|
Arthur
Jones, Trevor Williams and Brian Mazzella have the power to vote
and
dispose of the common shares being registered on behalf of Whalehaven
Capital Fund Limited. Warrant exercised for 20,000 shares of common
stock
between February 11, 2008 and April 10, 2008.
|
|
|
|
|
|
145
|
|
This
selling stockholder is an affiliate of a broker-dealer.
|
|
146
|
This
selling stockholder is an affiliate of a broker-dealer.
|
|
| 146A | Warrant exercised for 8,333 shares of common stock between February 11, 2008 and April 10, 2008. | |
|
|
|
|
|
147
|
|
Carolyn
Frost Keenan, as manager of Wolf Canyon LC, the general partner of
Wolf
Canyon Ltd. — Special, has the power to vote and dispose of the common
shares being registered on behalf of Wolf Canyon Ltd. —
Special.
|
|
|
|
|
|
148
|
|
Dror
Zadok has the power to vote and dispose of the common shares being
registered on behalf of Zadok Jewelers.
|
|
|
|
|
|
149
|
|
Dror
Zadok has the power to vote and dispose of the common shares being
registered on behalf of the Zadok Jewelry Inc. 401K Profit Sharing
Plan.
|
|
|
|
|
|
150
|
|
Stuart
Zimmer and Craig Lucas have the power to vote and dispose of the
common
shares being registered on behalf of ZLP Master Opportunity Fund,
Ltd.
|
|
|
||
|
151
|
|
Includes
79,365 exchangeable shares issued on November 10, 2005 in connection
with the share exchange. Glenn Gurr, President of 1053361 Alberta
Ltd. Has
sole voting and investment power over these shares, and also holds
175,000
shares of common stock and warrants to acquire an additional 87,500
shares
of common stock at an exercise price of $1.25 per share, acquired
in the
Offering.
|
|
|
|
|
|
152
|
|
Includes
870, 647 shares of common stock issued to Crosby Capital LLC as
consideration for our acquisition of Argosy Energy International.
Jay
Allen Chaffee has the power to vote and dispose of the common shares
being
registered on behalf of Crosby Capital LLC.
|
|
153
|
This
selling stockholder is a broker-dealer and an affiliate of a broker
dealer.
|
|
|
154
|
Ari
Levy has the power to vote and dispose of the common shares being
registered on behalf of Lakeview Master Fund, LTD.
|
|
|
155
|
Includes
191,094 shares of common stock and warrants to acquire an additional
114,595 shares of common stock at an exercise price of $1.25 per
share,
acquired in the First 2005
Offering.
|
|
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.
77
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 persons 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 was
a director of our company until March 27, 2008. John Long Jr. was the
husband of Ms. Smith at the time of purchase.
|
|
|
|
|
|
(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 12
to the Principal Stockholders table contained elsewhere in this
prospectus.
|
|
|
|
|
|
(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.
|
|
|
|
|
|
(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 13 to the Principal Stockholders
table
contained elsewhere in this
prospectus.
|
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. 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.
|
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
was a director of our company until March 27, 2008. John Long Jr. was
the husband of Ms. Smith at the time of
purchase.
|
In
connection with our acquisition of Goldstrike, which occurred on
November 10, 2005, the following related persons 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.
78
|
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 former 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 transactions with related persons. Potential related persons
transactions are to be referred to our Chief Executive Officer, and brought
to
the attention of the Board if material.
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
April 1, 2008, there were issued and outstanding 99,988,644 shares of common
stock (including 11,827,776 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 entirety 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, 99,988,644 shares (including 11,827,776 shares of common stock
issuable upon exchange of exchangeable shares) of which were outstanding as
of
April 1, 2008. 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.
79
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 March 6, 2008 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 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 Canada’s 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, 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
April 1, 2008, options representing the right to purchase 5,651,664 shares
of
common stock are issued and outstanding at a weighted average exercise price
of
$1.59. The outstanding options were granted pursuant to our 2007 Equity
Incentive Plan, which is an amendment and restatement of 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.
80
Warrants
As
of
April 1, 2008, the following warrants were issued and outstanding:
|
|
·
|
|
Warrants
representing the right to purchase 6,061,972 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.
|
|
|
|
||
|
|
·
|
|
Warrants
representing the right to purchase 22,873,919 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.
Anti-Takeover
Effects of Provisions of Nevada State Law
We
may be
or in the future we may become subject to Nevada’s control share law. A
corporation is subject to Nevada’s 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.
81
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
stockholder’s shares.
Nevada’s
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 corporation’s 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
corporation’s 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 Nevada’s 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 agent’s 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;
|
|
|
·
|
|
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.
82
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.
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. Atlantis
Company Profit Sharing Plan, Donald V. Weir and Julie E. Weir, Hazel Bennett,
IRA FBO Jill Anne Harris Pershing as Custodian, IRA FBO Lisa Marcelli Pershing
LLC as Custodian, Jan Bartholomew, Katherine U. Sanders 1990, Michael S.
Chadwick, Weiskopf, Silver & Co. LP and OTA LLC
are
broker-dealers and are deemed to be "underwriters" within the meaning of the
Securities Act in connection with selling the shares. 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.
83
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.
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 Inc. included in this
Prospectus have been audited by Deloitte & Touche LLP, independent
registered chartered accountants, as stated in their report appearing herein.
Such financial statements are included in reliance upon the report of such
firm
given upon their authority as experts in accounting and auditing.
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
studies to estimated proved oil reserves for the years 2003, 2004 and 2005
referred to therein were prepared by Huddleston & Co., Inc.
The
information regarding Gran Tierra’s oil and gas reserves has been reviewed by
Gaffney, Cline & Associates, independent consultants.
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 SEC’s 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 SEC’s website (
www.sec.gov
).
Our
common stock is listed on the American Stock Exchange under the symbol
“GTE” and on the Toronto Stock Exchange under the symbol “GTE”. 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 T2R
0B2,
Canada. 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.
84
GRAN
TIERRA ENERGY INC.
(FORMERLY
GOLDSTRIKE, INC.)
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidated
Financial Statements for the years ended December 31, 2006 and 2007
and for the period from incorporation on January 26, 2005 to
December 31, 2005:
|
||||
|
Report
of Independent Registered Chartered Accountants
|
F-2
|
|
||
|
Consolidated
Statements of Operations and Accumulated Deficit
|
F-3
|
|
||
|
Consolidated
Balance Sheets
|
F-4
|
|
||
|
Consolidated
Statements of Cash Flow
|
F-5
|
|
||
|
Consolidated
Statement of Shareholders’ Equity
|
F-6
|
|
||
|
Notes
to the Consolidated Financial Statements
|
F-7
|
|
||
|
Supplementary
Data (Unaudited)
|
F-23
|
|
||
|
Financial
Statements for Argosy Energy International, LP as of March 31, 2006
and the period ended March 31, 2006 (Unaudited)
|
F-27
|
|
||
|
|
||||
|
Statements
of Income
|
F-27
|
|
||
|
Balance
Sheets
|
F-28
|
|
||
|
Statements
of Cash Flows
|
F-29
|
|
||
|
Statements
of Partners’ Equity
|
F-30
|
|
||
|
Notes
to Financial Statements
|
F-31
|
|
||
|
|
||||
|
Financial
Statements for Argosy Energy International, LP as of December 31,
2005 and 2004
|
F-45
|
|
||
|
|
||||
|
Independent
Auditors’ Report
|
F-45
|
|
||
|
Statements
of Income
|
F-46
|
|
||
|
Balance
Sheets
|
F-47
|
|
||
|
Statements
of Cash Flows
|
F-48
|
|
||
|
Statements
of Partners’ Equity
|
F-49
|
|
||
|
Notes
to Financial Statements
|
F-50
|
|
||
|
Supplemental
Oil and Gas Information
|
|
|
||
|
Supplemental
Oil and Gas Information (unaudited)
|
F-66
|
|
F-1
Report
of
Independent Registered Chartered Accountants
To
the
Board of Directors and Shareholders of Gran Tierra Energy Inc.
We
have
audited the accompanying consolidated balance sheets of Gran Tierra Energy
Inc.
and subsidiaries (the
“Company”) as of December 31, 2007 and 2006, and the related consolidated
statements of operations, and stockholders' equity and cash flows for each
of
the two years then ended, and the period from incorporation on January 26,
2005 to December 31, 2005. These financial statements are the responsibility
of
the Company's 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 the audit
to
obtain reasonable assurance about 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. and
subsidiaries as
of December
31, 2007 and 2006, and the results of their operations and their cash flows
for
each of the two years then ended and for 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.
/s/
Deloitte & Touche LLP
Independent
Registered Chartered Accountants
Calgary,
Canada
March
7,
2008
F-2
Consolidated
Statements of Operations and Accumulated Deficit
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
|
|
Period
Ended December 31,
|
|||||||||
|
|
2007
|
2006
|
2005
|
|||||||
|
|
(Expressed
in U.S. dollars)
|
|||||||||
|
REVENUE
AND OTHER INCOME
|
|
|
|
|||||||
|
Oil
sales
|
$
|
31,807,641
|
$
|
11,645,553
|
$
|
946,098
|
||||
|
Natural
gas sales
|
44,971
|
75,488
|
113,199
|
|||||||
|
Interest
|
425,542
|
351,872
|
—
|
|||||||
|
|
32,278,154
|
12,072,913
|
1,059,297
|
|||||||
|
EXPENSES
|
||||||||||
|
Operating
|
10,474,368
|
4,233,470
|
395,287
|
|||||||
|
Depletion,
depreciation and accretion
|
9,414,907
|
4,088,437
|
462,119
|
|||||||
|
General
and administrative
|
10,231,952
|
6,998,804
|
2,482,070
|
|||||||
|
Liquidated
damages
|
7,366,949
|
1,527,988
|
—
|
|||||||
|
Derivative
financial instruments
|
3,039,690
|
—
|
—
|
|||||||
|
Foreign
exchange (gain) loss
|
(77,275
|
)
|
370,538
|
(31,271
|
)
|
|||||
|
|
40,450,591
|
17,219,237
|
3,308,205
|
|||||||
|
|
||||||||||
|
LOSS
BEFORE INCOME TAX
|
(8,172,437
|
)
|
(5,146,324
|
)
|
(2,248,908
|
)
|
||||
|
Income
tax
|
(294,767
|
)
|
(677,380
|
)
|
29,228
|
|||||
|
NET
LOSS AND COMPREHENSIVE LOSS
|
$
|
(8,467,204
|
)
|
$
|
(5,823,704
|
)
|
$
|
(2,219,680
|
)
|
|
|
ACCUMULATED
DEFICIT, beginning of period
|
(8,043,384
|
)
|
(2,219,680
|
)
|
—
|
|||||
|
ACCUMULATED
DEFICIT, end of period
|
$
|
(16,510,588
|
)
|
$
|
(8,043,384
|
)
|
$
|
(2,219,680
|
)
|
|
|
|
||||||||||
|
NET
LOSS PER COMMON SHARE — BASIC & DILUTED
|
(0.09
|
)
|
(0.08
|
)
|
(0.16
|
)
|
||||
|
|
||||||||||
|
Weighted
average common shares outstanding — basic &
diluted
|
95,096,311
|
72,443,501
|
13,538,149
|
|||||||
(See
notes to the consolidated financial statements)
F-3
Consolidated
Balance Sheets
|
|
Year
Ended December 31,
|
||||||
|
|
2007
|
2006
|
|||||
|
|
(Expressed
in U.S. dollars)
|
||||||
|
ASSETS
|
|
|
|||||
|
Current
assets
|
|
|
|||||
|
Cash
and cash equivalents
|
$
|
18,188,817
|
$
|
24,100,780
|
|||
|
Restricted
cash
|
—
|
2,291,360
|
|||||
|
Accounts
receivable
|
10,694,705
|
5,089,561
|
|||||
|
Inventory
|
786,921
|
811,991
|
|||||
|
Taxes
receivable
|
1,177,076
|
404,120
|
|||||
|
Prepaids
|
442,271
|
676,524
|
|||||
|
Deferred
tax asset (Note 8)
|
220,000
|
—
|
|||||
|
|
|||||||
|
Total
Current Assets
|
31,509,790
|
33,374,336
|
|||||
|
|
|||||||
|
Oil
and gas properties, using the full cost method of
accounting
|
|||||||
|
Proved
|
44,292,203
|
37,760,230
|
|||||
|
Unproved
|
18,910,229
|
18,333,054
|
|||||
|
|
|||||||
|
Total
Oil and Gas Properties
|
63,202,432
|
56,093,284
|
|||||
|
|
|||||||
|
Other
assets
|
715,470
|
614,104
|
|||||
|
|
|||||||
|
Total
Property, Plant and Equipment (Note 5)
|
63,917,902
|
56,707,388
|
|||||
|
|
|||||||
|
Long
term assets
|
|||||||
|
Deferred
tax asset (Note 8)
|
1,838,436
|
444,324
|
|||||
|
Taxes
receivable
|
525,350
|
—
|
|||||
|
Other
long-term assets
|
—
|
5,826
|
|||||
|
Goodwill
|
15,005,083
|
15,005,083
|
|||||
|
|
|||||||
|
Total
Long Term Assets
|
17,368,869
|
15,455,233
|
|||||
|
|
|||||||
|
Total
Assets
|
$
|
112,796,561
|
$
|
105,536,957
|
|||
|
|
|||||||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
|
Current
liabilities
|
|||||||
|
Accounts
payable (Note 9)
|
$
|
11,327,292
|
$
|
6,729,839
|
|||
|
Accrued
liabilities (Note 9)
|
6,138,684
|
8,932,966
|
|||||
|
Liquidated
damages
|
—
|
1,527,988
|
|||||
|
Derivative
financial instruments (Note 11)
|
1,593,629
|
—
|
|||||
|
Current
taxes payable
|
3,284,334
|
1,642,045
|
|||||
|
Deferred
tax liability (Note 8)
|
1,107,802
|
—
|
|||||
|
|
|||||||
|
Total
Current Liabilities
|
23,451,741
|
18,832,838
|
|||||
|
|
|||||||
|
Long
term liabilities
|
131,821
|
39,077
|
|||||
|
Deferred
tax liability (Note 8)
|
9,234,926
|
7,153,112
|
|||||
|
Deferred
remittance tax
|
1,332,016
|
2,722,545
|
|||||
|
Derivative
financial instruments (Note 11)
|
1,054,716
|
—
|
|||||
|
Asset
retirement obligation (Note 7)
|
799,486
|
594,606
|
|||||
|
|
|||||||
|
Total
Long Term Liabilities
|
12,552,965
|
10,509,340
|
|||||
|
|
|||||||
|
Shareholders’
equity
|
|||||||
|
Common
shares (Note 6)
|
95,176
|
95,455
|
|||||
|
(80,389,676
and 78,789,104 common shares and 14,787,303 and 16,666,661 exchangeable
shares, par value $0.001 per share, issued and outstanding as at
December
31, 2007 and 2006, respectively)
|
|||||||
|
Additional
paid in capital
|
72,457,519
|
71,311,155
|
|||||
|
Warrants
|
20,749,748
|
12,831,553
|
|||||
|
Accumulated
deficit
|
(16,510,588
|
)
|
(8,043,384
|
)
|
|||
|
|
|||||||
|
Total
Shareholders’ Equity
|
76,791,855
|
76,194,779
|
|||||
|
|
|||||||
|
Total
Liabilities and Shareholders’ Equity
|
$
|
112,796,561
|
$
|
105,536,957
|
|||
|
(See
notes to the consolidated financial statements)
|
|
F-4
Consolidated
Statements of Cash Flow
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
|
|
Period
Ended December 31,
|
|||||||||
|
|
2007
|
2006
|
2005
|
|||||||
|
|
(Expressed
in U.S. dollars)
|
|||||||||
|
Operating
Activities
|
|
|
|
|||||||
|
Net
loss
|
$
|
(8,467,204
|
)
|
$
|
(5,823,704
|
)
|
$
|
(2,219,680)
|
|
|
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||||
|
Depletion,
depreciation and accretion
|
9,414,907
|
4,088,437
|
462,119
|
|||||||
|
Deferred
tax
|
(702,827
|
)
|
892,998
|
(29,228
|
)
|
|||||
|
Stock
based compensation
|
809,522
|
260,495
|
52,911
|
|||||||
|
Liquidated
damages
|
5,838,961
|
1,527,988
|
—
|
|||||||
|
Unrealized
loss on financial instruments
|
2,648,346
|
—
|
—
|
|||||||
|
Net
changes in non-cash working capital
|
||||||||||
|
Accounts
receivable
|
(5,605,144
|
)
|
(4,280,601
|
)
|
(808,960
|
)
|
||||
|
Inventory
|
25,070
|
(364,983
|
)
|
(447,012
|
)
|
|||||
|
Prepaids
and other current assets
|
234,253
|
(633,823
|
)
|
(42,701
|
)
|
|||||
|
Deferred
tax asset
|
(220,000
|
)
|
—
|
—
|
||||||
|
Accounts
payable and accrued liabilities
|
261,658
|
3,799,554
|
1,264,052
|
|||||||
|
Taxes
receivable and payable
|
869,333
|
(295,981
|
)
|
(108,139
|
)
|
|||||
|
Deferred
tax liability
|
1,107,802
|
—
|
—
|
|||||||
|
|
||||||||||
|
Net
cash provided by (used in) operating activities
|
6,214,677
|
(829,620
|
)
|
(1,876,638
|
)
|
|||||
|
|
||||||||||
|
Investing
Activities
|
||||||||||
|
Restricted
cash
|
1,010,409
|
(1,020,490
|
)
|
(400,427
|
)
|
|||||
|
Oil
and gas property expenditures
|
(13,429,570
|
)
|
(7,434,463
|
)
|
(8,707,595
|
)
|
||||
|
Business
acquisition
|
—
|
(36,911,959
|
)
|
—
|
||||||
|
Long
term assets and liabilities
|
(426,782
|
)
|
—
|
—
|
||||||
|
|
||||||||||
|
Net
cash used in investing activities
|
(12,845,943
|
)
|
(45,366,912
|
)
|
(9,108,022
|
)
|
||||
|
|
||||||||||
|
Financing
Activities
|
||||||||||
|
Restricted
cash
|
—
|
(1,280,993
|
)
|
—
|
||||||
|
Proceeds
from issuance of common stock
|
719,303
|
69,356,849
|
13,206,116
|
|||||||
|
|
||||||||||
|
Net
cash provided by financing activities
|
719,303
|
68,075,856
|
13,206,116
|
|||||||
|
|
||||||||||
|
Net
(decrease) increase in cash and cash equivalents
|
(5,911,963
|
)
|
21,879,324
|
2,221,456
|
||||||
|
Cash
and cash equivalents, beginning of period
|
24,100,780
|
2,221,456
|
—
|
|||||||
|
|
||||||||||
|
Cash
and cash equivalents, end of period
|
$
|
18,188,817
|
$
|
24,100,780
|
$
|
2,221,456
|
||||
|
|
||||||||||
|
Supplemental
cash flow disclosures:
|
||||||||||
|
Cash
paid for interest
|
$
|
80,234
|
$
|
104,307
|
$
|
—
|
||||
|
Cash
paid for taxes
|
$
|
116,140
|
$
|
741,380
|
$
|
—
|
||||
|
Non-cash
investing activities:
|
||||||||||
|
Accounts
payable related to capital additions
|
$
|
2,799,580
|
$
|
10,599,199
|
$
|
—
|
||||
(See
notes to the consolidated financial statements)
F-5
Consolidated
Statement of Shareholders’ Equity
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
|
|
Period
Ended December 31,
|
|||||||||
|
|
2007
|
2006
|
2005
|
|||||||
|
|
(Expressed
in U.S. dollars)
|
|||||||||
|
Share
Capital
|
|
|
|
|||||||
|
Balance
beginning of period
|
$
|
95,455
|
$
|
43,285
|
$
|
—
|
||||
|
Issue
of common shares
|
670
|
52,170
|
43,285
|
|||||||
|
Cancelled
common shares
|
(949
|
)
|
—
|
—
|
||||||
|
|
||||||||||
|
Balance
End of Period
|
$
|
95,
176
|
$
|
95,455
|
$
|
43,285
|
||||
|
|
||||||||||
|
Additional
Paid-in-Capital
|
||||||||||
|
Balance
beginning of period
|
$
|
71,311,155
|
$
|
11,807,313
|
$
|
—
|
||||
|
Cancelled
common shares
|
(1,086,213
|
)
|
—
|
—
|
||||||
|
Issue
of common shares
|
718,633
|
59,190,356
|
11,754,402
|
|||||||
|
Exercise
of warrants
|
513,030
|
52,991
|
—
|
|||||||
|
Stock
based compensation expense
|
1,000,914
|
260,495
|
52,911
|
|||||||
|
|
||||||||||
|
Balance
end of period
|
$
|
72,457,519
|
$
|
71,311,155
|
$
|
11,807,313
|
||||
|
|
||||||||||
|
Warrants
|
||||||||||
|
Balance
beginning of period
|
$
|
12,831,553
|
$
|
1,408,429
|
$
|
—
|
||||
|
Cancelled
warrants
|
(232,548
|
)
|
—
|
—
|
||||||
|
Issue
of warrants
|
8,625,014
|
11,476,115
|
1,408,429
|
|||||||
|
Exercise
of warrants
|
(474,271
|
)
|
(52,991
|
)
|
—
|
|||||
|
|
||||||||||
|
Balance
end of period
|
$
|
20,749,748
|
$
|
12,831,553
|
$
|
1,408,429
|
||||
|
|
||||||||||
|
Accumulated
Deficit
|
||||||||||
|
Balance
beginning of period
|
$
|
(8,043,384
|
)
|
$
|
(2,219,680
|
)
|
$
|
—
|
||
|
Net
loss
|
(8,467,204
|
)
|
(5,823,704
|
)
|
(2,219,680
|
)
|
||||
|
|
||||||||||
|
Balance
end of period
|
$
|
(16,510,588
|
)
|
$
|
(8,043,384
|
)
|
$
|
(2,219,680
|
)
|
|
|
|
||||||||||
|
Total
Shareholders’ Equity
|
$
|
76,791,855
|
$
|
76,194,779
|
$
|
11,039,347
|
||||
(See
notes to the consolidated financial statements)
F-6
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
1.
Description of Business
Gran
Tierra Energy Inc., a Nevada corporation (the “Company” or “Gran Tierra Energy”)
is a publicly traded oil and gas company engaged in acquisition, exploration,
development and production of oil and natural gas properties. The Company’s
principal business activities are in Argentina, Colombia and Peru.
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.
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.
Use
of estimates
The
preparation of financial statements in conformity with GAAP 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
and changes from those estimates are recorded when known. Oil and natural gas
reserves and related present value of future cash flows, impairment assessments,
stock option expense, income taxes, asset retirement obligation, derivative
instrument valuation, legal and environmental risks and exposures and any
assumptions associated with valuation of oil and gas property are all subject
to
estimation in the Company’s financial results.
Foreign
currency translation
The
functional currency of the Company, including its subsidiaries in Argentina,
Colombia and Peru, is the United States dollar. Monetary items are translated
into the reporting currency at the exchange rate in effect at the balance sheet
date and non-monetary items are translated at historical exchange rates. Revenue
and expense items are translated in a manner that produces substantially the
same reporting currency amounts that would have resulted had the underlying
transactions been translated on the dates they occurred. Depreciation or
amortization of assets is translated at the historical exchange rates similar
to
the assets to which they relate.
Gains
and
losses resulting from foreign currency transactions, which are transactions
denominated in a currency other than the entity’s functional currency, are
included in the consolidated statement of operations and deficit.
The
Company’s financial instruments are cash and cash equivalents, restricted cash,
accounts receivable, accounts payable and accrued liabilities. The fair values
of these financial instruments approximate their carrying values due to their
immediate or short-term nature.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
F-7
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
Restricted
cash
During
the second quarter of 2007, investors holding 948,853 units exercised their
right to have Gran Tierra Energy return to them their purchase price for the
securities held in escrow. Funds of $1,280,951, held in escrow by the Bank
of
America were refunded to the investors in June, 2007, and the securities were
cancelled by the Company. No other investors have the right to cause the Company
to return their purchase price for securities. During the first quarter of
2007,
the $1,009,009 held as a letter of credit for work commitments in Peru was
returned to Gran Tierra Energy. Export Development Canada put a guarantee in
place on the Company’s behalf which resulted in the return of the restricted
cash.
Inventory
Inventory
consists of crude oil in tanks and supplies. Crude oil in tanks is valued at
the
lower of cost or market value. Supplies are valued at cost or less. The cost
of
inventory is determined using the weighted average method. Crude oil inventories
include expenditures incurred to produce, upgrade and transport the product
to
the storage facilities. Crude oil inventories at December 31, 2007 and 2006
are
$381,138 and $629,991, respectively. Supplies at December 31, 2007 and 2006
are
$405,783 and $182,000, respectively.
Oil
and 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 Company’s proved reserve quantities in a particular
country are sold (25% or greater), 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 property 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. In exploration areas, related Geological and
geophysical (“G&G”) costs are capitalized in unproved property and evaluated
as part of the total capitalized costs associated with a property. G&G costs
related to development projects are recorded in proved properties and therefore
subject to amortization as incurred.
The
Company performs a ceiling test calculation each quarter in accordance with
the
Securities Exchange Commission (“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 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-8
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
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 are 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.
Other
assets
Other
assets, including additions and replacements, are recorded at cost upon
acquisition and included furniture and fixtures, computer equipment, automobiles
and assets under capital leases. The cost of repairs and maintenance is charged
to expense as incurred. Depreciation related to assets under capital leases
is
recorded as part of depletion, depreciation and accretion in the Statement
of
Operations. 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 reasonably assured. For
the Company’s Colombian operations, Gran Tierra Energy’s customers take title
when the crude oil is transferred to their pipeline. In Argentina, Gran Tierra
Energy transports product from the field to the customer’s refinery by truck.
Revenue represents the Company’s 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. 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 Company’s reporting units, the fair values of the reporting units are
estimated based upon estimated future cash flows of the reporting unit. The
goodwill on the Company’s financial statements was a result of the Argosy
acquisition, and relates entirely to the Colombia reporting segment. The Company
performed annual impairment tests of goodwill at December 31, 2006 and 2007.
Based on these assessments, no impairment of goodwill was
identified.
Income
taxes
Deferred
income taxes are recognized using the 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. Deferred tax assets
and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences and carryforwards
are
expected to be recovered or settled. Valuation allowances are provided if,
after
considering available evidence, it is not more likely than not that some or
all
of the deferred tax assets will be realized.
F-9
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
The
evaluation of a tax position in accordance with FIN 48 (FASB Interpretation
Number) Accounting
for Uncertainty in Income Taxes with
respect to FAS 109 Accounting
for Income Taxes
is a
two-step process. The first step is recognition: The Company determines whether
it is more likely than not that a tax position will be sustained upon
examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. In evaluating whether
a tax position has met the more-likely-than-not recognition threshold, the
Company presumes that the position will be examined by the appropriate taxing
authority that has full knowledge of all relevant information. The second step
is measurement: A tax position that meets the more-likely-than-not recognition
threshold is measured to determine the amount of benefit to recognize in the
financial statements. The tax position is measured at the largest amount of
benefit that is greater than 50 percent likely of being realized upon
settlement. The Company recognizes potential accrued interest and penalties
related to unrecognized tax benefits as a component of income tax expense in
the
consolidated statement of operations. This is an accounting policy election
made
by the Company that is a continuation of the Company’s historical policy and
will continue to be consistently applied in the future.
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.
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, 2007 and
2006, 5,724,168 and 2,700,000 options to purchase common shares and warrants
to
purchase 33,917,536 and 35,156,915 common shares, respectively, 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
as
part of oil and natural gas properties, operating and general and administrative
expenses 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 requisite service period of the
option.
Accounting
for Oil and Gas Derivative Instruments
The
Company follows the provisions of SFAS No.133,“Accounting
for Derivative Instruments and Hedging Activities”
(“SFAS
133”). SFAS 133 requires the accounting recognition of all derivative
instruments as either assets or liabilities at fair value. Under the provisions
of SFAS 133, the Company may or may not elect to designate a derivative
instrument as a hedge against changes in the fair value of an asset or a
liability (a “fair value hedge”) or against exposure to variability in expected
future cash flows (a “cash flow hedge”). The accounting treatment for the
changes in fair value of a derivative instrument is dependent upon whether
or not a derivative instrument is a cash flow hedge or a fair value hedge,
and
upon whether or not the derivative is designated as a hedge as noted above.
Changes in fair value of a derivative designated as a cash flow hedge are
recognized, to the extent the hedge is effective, in other comprehensive income
until the hedged item is recognized in earnings. Changes in the fair value
of a
derivative instrument designated as a fair value hedge are recognized in the
statement of operations along with the changes in fair value of the hedged
item
attributable to the hedged risk. Where hedge accounting is not elected or if
a
derivative instrument does not qualify as either a fair value hedge or a cash
flow hedge, changes in fair value are recognized in earnings as derivative
financial instrument gain or loss. The Company’s derivative instruments
currently do not qualify as either a fair value hedge or a cash flow
hedge.
F-10
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
Warrants
The
Company follows the fair-value method of accounting for warrants issued to
purchase its common stock. The change of $8.6 million in the fair value of
warrants issued in the 2006 Offering, arising from the amendment to the terms
of
the warrants in connection with the settlement of the liability for liquidated
damages, was determined using a Black-Scholes warrant pricing model based on
a
25% volatility rate, which reflects a typical volatility rate used to value
this
type of financial instrument.
New
Accounting Pronouncements
In
July
2006, the FASB issued FIN 48 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 the Company 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 the Company’s
consolidated financial statements and did not require the Company to
record any amounts in the financial statements.
In
September 2006, the FASB issued SFAS 157, Fair
Value Measurements. SFAS
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 provisions of SFAS 157 are to be applied
prospectively, except for the initial impact in certain situations, which are
required to be recorded as an adjustment to the opening balance of retained
earnings in the year of adoption. 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, 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 SFAS 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. For the year ended December 31, 2007 the Company
expensed an additional amount of $7,366,949. As at December 31, 2007, the
Company had an accumulated expense for liquidated damages of $8,625,014.
Pursuant to an amendment of terms of Registration Rights Payments with respect
to the associated shareholder agreement, the Company’s 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.
F-11
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”. SFAS 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. SFAS 159 is effective for the Company’s
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.
In
December 2007, the FASB issued SFAS 141 (R), “Business
Combinations”,
and
SFAS 160, “Noncontrolling
Interests in Consolidated Financial Statements”. SFAS 141
(R) requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquiree at their
fair values on the acquisition date, with goodwill being the excess value over
the net identifiable assets acquired. SFAS 160 clarifies that a
noncontrolling interest in a subsidiary should be reported as equity in the
consolidated financial statements. The calculation of earnings per share will
continue to be based on income amounts attributable to the parent. SFAS 141
(R) and SFAS 160 are effective for financial statements issued for
fiscal years beginning after December 15, 2008. Early adoption is
prohibited and the provisions are applied prospectively. The Company has not
yet
determined the effect on our consolidated financial statements, if any, upon
adoption of SFAS 141 (R) or SFAS No. 160.
3.
Business Combination
Gran
Tierra Energy 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 Energy closed the Argosy acquisition and paid consideration
to
Crosby consisting of $37.5 million cash, 870,647 shares of the Company’s common
stock and overriding and net profit interests in certain of Argosy’s 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 International’s assets are in Colombia.
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:
|
Cash
paid (net of cash acquired)
|
$
|
36,414,385
|
||
|
Common
shares issued
|
1,305,971
|
|||
|
Transaction
costs
|
497,574
|
|||
|
|
||||
|
Total
purchase price
|
$
|
38,217,930
|
||
|
|
||||
|
Purchase
Price Allocated:
|
||||
|
Oil
and natural 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
|
(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 supplies and $70,000 of oil
inventory.
|
F-12
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
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
|
294,105
|
1,569,000
|
|||||
|
Earnings
per share (Basic)
|
$
|
0.01
|
$
|
0.04
|
|||
|
Earnings
per share (Diluted)
|
$
|
0.01
|
$
|
0.03
|
|||
4.
Segment and Geographic Reporting
The
Company’s reportable operating 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 and is included as part of the Corporate
balances. The accounting policies of the reportable operating segments are
the
same as those described in the summary of significant accounting policies.
The
Company evaluates performance based on profit or loss from oil and natural
gas
operations before price risk management and income taxes.
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.
F-13
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
The
following tables present information on the Company’s reportable geographic
segments:
|
Gran
Tierra Energy Inc.
|
|||||||||||||
|
Year
Ended December 31, 2007
|
|||||||||||||
|
|
Corporate
|
Colombia
|
Argentina
|
Total
|
|||||||||
|
Revenues
|
$
|
—
|
$
|
23,748,155
|
$
|
8,104,457
|
$
|
31,852,612
|
|||||
|
Interest
income
|
187,532
|
222,785
|
15,225
|
425,542
|
|||||||||
|
Depreciation,
depletion & accretion
|
87,987
|
6,850,086
|
2,476,834
|
9,414,907
|
|||||||||
|
Segment
income (loss) before income tax
|
(17,181,895
|
)
|
11,484,448
|
(2,474,990
|
)
|
(8,172,437
|
)
|
||||||
|
Segment
capital expenditures
|
$
|
731,281
|
$
|
14,214,835
|
$
|
1,679,305
|
$
|
16,625,421
|
|||||
|
|
|||||||||||||
|
Year
Ended December 31, 2006
|
|||||||||||||
|
Corporate
|
|
|
Colombia
|
|
|
Argentina
|
|
|
Total
|
||||
|
Revenues
|
$
|
—
|
$
|
6,612,190
|
$
|
5,108,851
|
$
|
11,721,041
|
|||||
|
Interest
income
|
351,872
|
—
|
—
|
351,872
|
|||||||||
|
Depreciation,
depletion & accretion
|
43,576
|
2,494,317
|
1,550,544
|
4,088,437
|
|||||||||
|
Segment
income (loss) before income tax
|
(6,221,372
|
)
|
1,486,075
|
(411,027
|
)
|
(5,146,324
|
)
|
||||||
|
Segment
capital expenditures
|
$
|
256,482
|
$
|
34,053,289
|
$
|
14,084,410
|
$
|
48,394,181
|
|||||
|
|
|||||||||||||
|
Period
Ended December 31, 2005
|
|||||||||||||
|
Corporate
|
|
|
Colombia
|
|
|
Argentina
|
|
|
Total
|
||||
|
Revenues
|
$
|
—
|
$
|
—
|
$
|
1,059,297
|
$
|
1,059,297
|
|||||
|
Depreciation,
depletion & accretion
|
9,097
|
—
|
453,022
|
462,119
|
|||||||||
|
Segment
income (loss) before income tax
|
(2,136,463
|
)
|
—
|
(112,445
|
)
|
(2,248,908
|
)
|
||||||
|
Segment
capital expenditures
|
$
|
131,200
|
$
|
—
|
$
|
8,182,008
|
$
|
8,313,208
|
|||||
|
|
Year
Ended December 31, 2007
|
||||||||||||
|
|
Corporate
|
|
Colombia
|
|
Argentina
|
|
Total
|
||||||
|
Property,
plant & equipment
|
$
|
1,030,976
|
$
|
43,638,837
|
$
|
19,248,089
|
$
|
63,917,902
|
|||||
|
Goodwill
|
—
|
15,005,083
|
—
|
15,005,083
|
|||||||||
|
Other
assets
|
11,302,705
|
15,949,418
|
6,621,453
|
33,873,576
|
|||||||||
|
Total
|
$
|
12,333,681
|
$
|
74,593,338
|
$
|
25,869,542
|
$
|
112,796,561
|
|||||
|
|
|||||||||||||
|
Year
Ended December 31, 2006
|
|||||||||||||
|
Corporate
|
|
|
Colombia
|
|
|
Argentina
|
|
|
Total
|
||||
|
Property,
plant & equipment
|
$
|
387,682
|
$
|
36,274,088
|
$
|
20,045,618
|
$
|
56,707,388
|
|||||
|
Goodwill
|
—
|
15,005,083
|
—
|
15,005,083
|
|||||||||
|
Other
assets
|
13,242,859
|
9,878,443
|
10,703,184
|
33,824,486
|
|||||||||
|
Total
|
$
|
13,630,541
|
$
|
61,157,614
|
$
|
30,748,802
|
$
|
105,536,957
|
|||||
The
Company’s revenues are derived principally from uncollaralized sales to
customers in the oil and natural gas industry. The concentration of credit
risk
in a single industry affects the Company’s overall exposure to credit risk
because customers may be similarly affected by changes in economic and other
conditions. In 2007, the Company has one significant customer for its Colombian
crude oil, Ecoptrol S.A., a Colombian government agency. In Argentina, the
Company has one significant customer, Refineria del Norte S.A.
F-14
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
5.
Property, Plant and Equipment
|
|
As
at December 31, 2007
|
As
at December 31, 2006
|
|||||||||||||||||
|
|
Cost
|
Accumulated
DD&A
|
Net
book value
|
Cost
|
Accumulated
DD&A
|
Net
book value
|
|||||||||||||
|
Oil
and natural gas properties
|
|
|
|
|
|
||||||||||||||
|
Proven
|
$
|
57,832,454
|
$
|
(13,540,251
|
)
|
$
|
44,292,203
|
$
|
41,191,274
|
$
|
(3,431,044
|
)
|
$
|
37,760,230
|
|||||
|
Unproven
|
18,910,229
|
—
|
18,910,229
|
18,333,054
|
—
|
18,333,054
|
|||||||||||||
|
Furniture
and fixtures
|
815,333
|
(559,481
|
)
|
255,852
|
289,353
|
(47,637
|
)
|
241,716
|
|||||||||||
|
Computer
equipment
|
718,540
|
(299,195
|
)
|
419,345
|
912,645
|
(592,646
|
)
|
319,999
|
|||||||||||
|
Automobiles
|
71,695
|
(31,422
|
)
|
40,273
|
69,499
|
(17,110
|
)
|
52,389
|
|||||||||||
|
Total
capital assets
|
$
|
78,348,251
|
$
|
(14,430,349
|
)
|
$
|
63,917,902
|
$
|
60,795,825
|
$
|
(4,088,437
|
)
|
$
|
56,707,388
|
|||||
The
Company has capitalized $1,690,937 (2006 - $138,383) of general and
administrative expenses directly related to the Colombian full cost center
including $138,779 of stock-based compensation expense and $167,372 (2006 -
$3,921) of general and administrative expenses in the Argentina full cost center
which includes $52,613 of stock-based compensation.
The
unproven oil and natural gas properties consist of exploration lands held in
Colombia, Argentina and Peru. The Company has $15.1 million in unproved
assets in Colombia, $3.1 million of unproved assets in Argentina and $0.7
million of unproved assets in Peru. These properties are being held for their
exploration value and are not being depleted pending determination of existence
of estimated proved reserves. Gran Tierra Energy will continue to assess and
allocate the unproven properties over the next several years as proved reserves
are established and as exploration dictates whether or not future areas will
be
developed.
The
following is a summary of Gran Tierra Energy’s oil and natural gas properties
not subject depletion as of December 31, 2007
|
|
Costs
Incurred in
|
|
||||||||
|
|
2007
|
2006
|
Total
|
|||||||
|
Acquisition
costs - Argentina
|
$
|
—
|
$
|
3,148,206
|
$
|
3,148,206
|
||||
|
Acquisition
costs - Colombia
|
—
|
11,418,956
|
11,418,956
|
|||||||
|
Exploration
costs - Peru
|
656,244
|
—
|
656,244
|
|||||||
|
Exploration
costs - Colombia
|
807,670
|
—
|
807,670
|
|||||||
|
Development
costs - Colombia
|
2,879,153
|
—
|
2,879,153
|
|||||||
|
Total
oil and natural gas properties not subject to depletion
|
$
|
4,343,067
|
$
|
14,567,162
|
$
|
18,910,229
|
||||
6.
Share Capital
Share
capital
The
Company’s authorized share capital consists of 325,000,001 shares of our capital
stock, of which 300 million are designated as common stock, par value
$0.001 per share, 25 million are designated as preferred stock, par value
$0.001 per share (collectively, “common stock”), and 1 share designated as
special voting stock, par value $0.001 per share. Outstanding share capital
consists of 80,389,676 common voting shares of the Company and 14,787,303
exchangeable shares of Goldstrike Exchange Co. Each exchangeable share is
exchangeable only into one common voting share of the Company. The holders
of
common stock are 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. Holders of exchangeable
shares have the same rights as holders of common voting shares.
F-15
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
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 the Company return to them the purchase price for the securities
held in escrow. The funds of $1,280,951, held in escrow by the Bank of America
were refunded to the investors to complete this transaction during June, 2007,
and the units were cancelled.
Warrants
At
December 31, 2007, the Company had 14,442,622 warrants outstanding to
purchase 7,221,311 common shares for $1.25 per share and 53,392,450 warrants
outstanding to purchase 26,696,225 common shares for $1.05 per
share.
In
connection with settlement of liquidated damages relating to a delay in
registration of units issued in June 2006, as described in the “Registration
Rights Payments” section below, the Company amended the terms of the warrants
issued to stockholders in June 2006 by adjusting the exercise price from $1.75
to $1.05 and extending the term of the warrants by one year to June
2012.
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 were not declared
effective by the SEC by specified dates, the Company was required to pay
liquidated damages to the purchasers of the share and warrants.
The
15,047,606 units issued in the fourth quarter of 2005 and first quarter of
2006
had liquidated damages payable in the amount of 1% of the purchase price for
each unit per month payable each month the registration statement was 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.
In
June,
2006, the Company sold an aggregate of 50 million units of its securities at
a
price of $1.50 per unit in a private offering for gross proceeds of $75 million,
pursuant to three separate Securities Purchase Agreements, dated June 20, 2006,
and one Securities Purchase Agreement, dated June 30, 2006 (collectively, the
“2006 Offering”). Each unit comprised one share of Gran Tierra Energy’s common
stock and one warrant to purchase one-half of a share of Gran Tierra Energy’s
common stock at an exercise price of $1.75 for a period of five years, resulting
in the issuance of 50 million shares of Gran Tierra Energy’s common stock. In
connection with the issuance of these securities, Gran Tierra Energy entered
into four separate Registration Rights Agreements with the investors pursuant
to
which Gran Tierra Energy agreed to register for resale the shares and warrants
(and shares issuable pursuant to the warrants) issued to the investors in the
offering by November 17, 2006. The second registration statement was declared
effective by the SEC on May 14, 2007. Gran Tierra Energy had accrued $8.6
million in liquidated damages as of that date.
On
June
27, 2007, under the terms of the Registration Rights Agreements, the Company
obtained a sufficient number of consents from the signatories to the agreements
waiving Gran Tierra Energy’s obligation to pay in cash the accrued liquidated
damages. The Company agreed to amend the terms of the warrants issued in the
2006 Offering by reducing the exercise price of the warrants to $1.05 and
extending the life of the warrants by one year, in lieu of a cash payment for
liquidated damages. The revised fair value of the warrants was determined using
a Black-Scholes warrant pricing model based on a 25% volatility rate, which
reflects a typical volatility rate used to value this type of financial
instrument. The $8,625,014 of liquidated damages has been recorded as an expense
in the consolidated statement of operations in the amounts of $7,366,949 million
for the year ended December 31, 2007, and $1,258,065 million in the fourth
quarter of 2006, with a corresponding liability recorded on the consolidated
balance sheet. The revision in the fair value of the warrants resulting from
the
amendment to the terms of the warrants amounted to $8,625,014 (equivalent to
the
amount of the liquidated damages) and has been reflected on the consolidated
balance sheet as an increase to the warrant value included in shareholders’
equity and a settlement of the liability for liquidated damages.
F-16
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
Stock
options
As
December 31, 2007, the Company has a 2007 Equity Incentive Plan, formed through
the approval by shareholders of the amendment and restatement of the 2005 Equity
Incentive Plan, under which the Company’s board of directors is authorized to
issue options or other rights to acquire up to 9,000,000 shares of the Company’s
common stock.
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 the grantees 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,
December 31, 2006
|
2,700,000
|
$
|
1.07
|
||||
|
Granted
in 2007
|
3,372,501
|
$
|
1.87
|
||||
|
Forfeited
in 2007
|
(348,333
|
)
|
$
|
(1.57
|
)
|
||
|
Outstanding,
December 31, 2007
|
5,724,168
|
$
|
1.52
|
||||
The
weighted average grant date fair value for options granted in 2007 was $1.10
(2006 - $0.84; 2005 - $0.20)
The
table
below summarizes stock options outstanding at December 31,
2007:
|
|
Number
of
|
Weighted
Average
|
Weighted
|
|||||||
|
|
Outstanding
|
Exercise
Price
|
Average
|
|||||||
|
Range
of Exercise Prices ($/option)
|
Options
|
$/Option
|
Expiry
Years
|
|||||||
|
$0.80
|
1,311,668
|
$
|
0.80
|
7.9
|
||||||
|
$1.19
to $1.29
|
1,890,000
|
$
|
1.26
|
9.0
|
||||||
|
$1.72
|
385,000
|
$
|
1.72
|
9.9
|
||||||
|
$2.14
|
2,137,500
|
$
|
2.14
|
10.0
|
||||||
|
Total
|
5,724,168
|
$
|
1.52
|
9.2
|
||||||
The
aggregate intrinsic value of options outstanding at December 31, 2007 is
$6,334,036 based on the Company’s closing stock price of $2.62 for that date. At
December 31, 2007, there was $2,927,266 of unrecognized compensation cost
related to unvested stock options which is expected to be recognized over the
next 3 years.
The
table
below summarizes exercisable stock options at December 31,
2007:
|
|
Number
of
|
Weighted
Average
|
Weighted
|
|||||||
|
|
Exercisable
|
Exercise
Price
|
Average
|
|||||||
|
Range
of Exercise Prices ($/option)
|
Options
|
|
$
/Option
|
|
|
Expiry
Years
|
||||
|
$0.80
|
892,501
|
$
|
0.80
|
7.9
|
||||||
|
$1.19
to $1.27
|
351,666
|
$
|
1.27
|
8.9
|
||||||
|
Total
|
1,244,167
|
$
|
0.93
|
8.1
|
||||||
The
weighted average grant date fair value for options vested in 2007 was $0.49
(2006 - $0.10). The aggregate intrinsic value of options exercisable at December
31, 2007 is $3,259,718 based on the Company’s closing stock price of $2.62 for
that date.
F-17
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
In
2007,
the stock-based compensation expense is $1,000,914 (2006 - $260,495; 2005 -
$52,911) of which $737,010 (2006- $260,495; 2005 - $52,911) has been recorded
in
general and administrative expense and $72,513 has been recorded in operating
expense in the consolidated statement of operations. In 2007, $191,391 was
capitalized as part of exploration and development costs.
The
fair
value of each stock option award is estimated on the date of grant using the
Black-Scholes option pricing model based on assumptions noted in the following
table. The Company uses historical data to estimate option exercises, expected
term and employee departure behavior used in the Black-Scholes option pricing
model. Expected volatilities used in the fair value estimate are based on
historical volatility of the Company’s stock. The risk-free rate for periods
within the contractual term of the stock options is based on the U.S. Treasury
yield curve in effect at the time of grant.
|
|
2007
|
2006
|
2005
|
|||||||
|
Dividend
yield ($ per share)
|
$
|
nil
|
$
|
nil
|
$
|
nil
|
||||
|
Volatility
(%)
|
93.8%
to 103.5
|
%
|
104.5
|
%
|
nil
|
|||||
|
Risk-free
interest rate (%)
|
3.5%
to 5.06
|
%
|
5.1
|
%
|
4.3
|
%
|
||||
|
Expected
term (years)
|
3
years
|
3
years
|
3
years
|
|||||||
|
Forfeiture
percentage (% per year)
|
10
|
%
|
10
|
%
|
10
|
%
|
||||
7.
Asset Retirement Obligation
The
December 31, 2007 asset retirement obligation is comprised of a Colombian
obligation in the amount of $375,971 (2006 - $266,854) and an Argentine
obligation in the amount of $423,515 (2006 - $327,752). Changes in the carrying
amounts of the asset retirement obligations associated with the Company’s oil
and natural gas properties are as follows:
|
|
December
31,
|
||||||
|
|
2007
|
2006
|
|||||
|
Balance,
beginning of year
|
$
|
594,606
|
$
|
67,732
|
|||
|
Liability
assumed with property acquisitions
|
—
|
476,168
|
|||||
|
Liability
incurred
|
154,110
|
45,645
|
|||||
|
Foreign
exchange
|
20,013
|
—
|
|||||
|
Accretion
|
30,757
|
5,061
|
|||||
|
Balance,
end of year
|
$
|
799,486
|
$
|
594,606
|
|||
8.
Income Taxes
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:
|
|
2007
|
2006
|
2005
|
|||||||
|
Loss
before income taxes
|
$
|
(8,172,437
|
)
|
$
|
(5,146,324
|
)
|
$
|
(2,248,908
|
)
|
|
|
|
32.12
|
%
|
34
|
%
|
34
|
%
|
||||
|
Income
tax benefit expected
|
(2,624,987
|
)
|
(1,749,750
|
)
|
(764,628
|
)
|
||||
|
Benefit
of tax losses not recognized
|
404,460
|
2,166,635
|
717,410
|
|||||||
|
Impact
of tax rate changes on future tax balances
|
277,508
|
-
|
-
|
|||||||
|
Impact
of foreign taxes
|
3,464,848
|
-
|
-
|
|||||||
|
Enhanced
tax depreciation incentive
|
(1,888,698
|
)
|
-
|
-
|
||||||
|
Stock-based
compensation
|
204,918
|
260,495
|
17,990
|
|||||||
|
Non-deductible
items
|
1,909,588
|
-
|
-
|
|||||||
|
Previously
unrecognized tax assets
|
(1,452,870
|
)
|
-
|
-
|
||||||
|
Total
Income Tax Expense (Recovery)
|
$
|
294,767
|
$
|
677,380
|
|
$
|
(29,228
|
)
|
||
F-18
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
Future
tax assets and liabilities consist of the following temporary
differences:
|
|
2007
|
2006
|
|||||
|
Future
tax assets
|
|
|
|||||
|
Tax
benefit of loss carryforwards
|
$
|
4,934,795
|
$
|
4,079,133
|
|||
|
Book
value in excess of tax basis
|
75,159
|
92,133
|
|||||
|
Foreign
tax credits and other accruals
|
732,741
|
46,471
|
|||||
|
Capital
losses
|
1,063,891
|
-
|
|||||
|
Future
tax assets before valuation allowance
|
6,806,586
|
4,217,737
|
|||||
|
Valuation
allowance
|
(4,748,150
|
)
|
(3,773,413
|
)
|
|||
|
|
$
|
2,058,436
|
$
|
444,324
|
|||
|
|
|||||||
|
Future
tax asset - current
|
$
|
220,000
|
-
|
||||
|
Future
tax asset - long-term
|
1,838,436
|
444,324
|
|||||
|
|
$
|
2,058,436
|
$
|
444,324
|
|||
|
|
|||||||
|
Future
tax liabilities
|
|||||||
|
Current
- book value in excess of tax basis
|
$
|
1,107,802
|
$
|
-
|
|||
|
Long-term
- book value in excess of tax basis
|
9,234,926
|
7,153,112
|
|||||
|
Book
value in excess of tax basis
|
$
|
10,342,728
|
$
|
7,153,112
|
|||
|
|
|||||||
|
Net
future tax assets (liabilities)
|
$
|
8,284,292
|
$
|
7,153,112
|
|||
The
Company was required to calculate a deferred remittance tax in Colombia based
on
7% of profits which are not reinvested in the business on the presumption that
such profits would be transferred to the foreign owners up to December 31,
2006.
As of January 1, 2007, the Colombian government rescinded this law, therefore,
no further remittance tax liabilities will be accrued. The historical balance
which was included on the Company’s financial statements as of December 31,
2007, as part of the deferred income taxes, was $1,332,016.
On
January 1, 2007, the Company adopted the provisions of FIN 48 however there
was
no impact on the opening retained earnings of the Company as a result of this
adoption. The Company has accrued no amounts as of December 31, 2007, for the
potential payment of interest and penalties. For the year ended December 31,
2007, the Company has not recognized any amounts in respect of potential
interest and penalties associated with uncertain tax positions. The Company
or
one of its subsidiaries files income tax returns in the U.S. federal
jurisdiction, various state jurisdictions and other foreign jurisdictions.
The
Company is subject to income tax examinations for the calendar tax years ending
2005 through 2007 in all jurisdictions.
As
at
December 31, 2007, the Company has future tax assets relating to net operating
loss carryforwards of $15.83 million (2006 - $11.72 million) and capital losses
of $3.04 million (2006 - nil) before valuation allowances. Of these losses,
$9.35 million (2006 - $5.25 million) are losses generated by the foreign
subsidiaries of the Company. Of the total losses, $3.97 million (2006 - $0.83
million) will begin to expire by 2012 and $11.85 million of net operating losses
and $3.04 million of capital losses (2006 - $10.89 million) will begin to expire
thereafter.
F-19
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
9.
Accrued Liabilities and Accounts Payable
The
accounts payable and accrued liabilities are comprised of the
following:
|
|
Year
Ended December 31, 2007
|
Year
Ended December 31, 2006
|
|||||||||||||||||||||||
|
|
Corporate
|
Colombia
|
Argentina
|
Total
|
Corporate
|
Colombia
|
Argentina
|
Total
|
|||||||||||||||||
|
Capital
|
$
|
51,422
|
$
|
2,525,225
|
$
|
222,934
|
$
|
2,799,581
|
$
|
—
|
$
|
5,077,485
|
$
|
5,521,714
|
$
|
10,599,199
|
|||||||||
|
Payroll
|
476,089
|
512,756
|
211,860
|
1,200,705
|
664,957
|
333,679
|
313,589
|
1,312,225
|
|||||||||||||||||
|
Audit,
legal, consultants
|
1,384,669
|
196,273
|
105,207
|
1,686,149
|
715,332
|
—
|
290,915
|
1,006,247
|
|||||||||||||||||
|
General
and administrative
|
318,926
|
298,748
|
73,367
|
691,041
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
Operating
|
—
|
10,357,624
|
730,876
|
11,088,500
|
—
|
2,745,134
|
—
|
2,745,134
|
|||||||||||||||||
|
Total
|
$
|
2,231,106
|
$
|
13,890,626
|
$
|
1,344,244
|
$
|
17,465,976
|
$
|
1,380,289
|
$
|
8,156,298
|
$
|
6,126,218
|
$
|
15,662,805
|
|||||||||
10.
Commitments and contingencies
Leases
Gran
Tierra Energy holds three categories of operating leases: office, vehicle and
housing. The Company pays monthly costs of $57,638 for office leases, $4,791
for
vehicle leases, $9,400 for a compressor and $2,561 for certain employee
accommodation leases in Colombia.
Future
lease payments at December 31, 2007 are as follows:
|
Year
|
Cost
|
|||
|
2008
|
$
|
833,799
|
||
|
2009
|
622,407
|
|||
|
2010
|
562,374
|
|||
|
2011
|
275,848
|
|||
|
2012
|
280,121
|
|||
|
Total
lease payments
|
$
|
2,574,549
|
||
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, 2007 capital assets were valued at $21,841 (net of
amortization of $17,870). Total rent expense for 2007 was $291,975 (2006 -
$221,477; 2005 - $26,904).
F-20
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
Future
lease payments under the office equipment leases at December 31, 2007 are
as follows:
|
Year
|
|
Cost
|
|
|
|
2008
|
|
$
|
9,991
|
|
|
2009
|
|
|
4,849
|
|
|
2010
|
|
|
4,163
|
|
|
2011
|
|
|
1,053
|
|
|
2012
|
|
|
—
|
|
|
Total
minimum lease payments
|
|
|
20,056
|
|
|
Less
amount representing interest
|
|
|
1,664
|
|
|
Less
amount included in current liabilities
|
|
|
8,879
|
|
|
|
|
$
|
9,513
|
|
Capital
lease agreements contain interest rates between 4.75 and 20.5 percent and mature
over one to four years. Interest expense incurred under these capital leases
to
December 31, 2007 was $2,657 (2006 - $2,346).
The
Company has contracted with a third party to provide catering services for
its
field operations in Colombia. The contract ends January 14, 2009. The remaining
contractual commitment is $280,771 to be incurred evenly over the remaining
duration of the contract.
The
Company has contracted with a third party to provide a helicopter for field
transportation for its Colombia field operations. The contract ends September
30, 2008. The minimum obligation under the contract is for 30 flight hours
per
month at a rate of $880 per hour. The remaining nine month obligation is
$237,600.
Guarantees
Corporate
indemnities have been provided by the Company to directors and officers for
various items including, but not limited to, all costs to settle suits or
actions due to their association with the Company and its subsidiaries and/or
affiliates, subject to certain restrictions. The Company has purchased
directors’ and officers’ liability insurance to mitigate the cost of any
potential future suits or actions. Each indemnity, subject to certain
exceptions, applies for as long as the indemnified person is a director or
officer of one of the Company’s subsidiaries and/or affiliates. The maximum
amount of any potential future payment cannot be reasonably
estimated.
The
Company may provide indemnifications in the normal course of business that
are
often standard contractual terms to counterparties in certain transactions
such
as purchase and sale agreements. The terms of these indemnifications will vary
based upon the contract, the nature of which prevents the Company from making
a
reasonable estimate of the maximum potential amounts that may be required to
be
paid. Management believes the resolution of these matters would not have a
material adverse impact on the Company’s liquidity, consolidated financial
position or results of operations.
Contingencies
As
of
December 31, 2007 the contracting parties of Guayuyaco Association Contract,
Ecopetrol and Argosy, are working to clarify 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 Guayuyaco Association Contract. Ecopetrol interprets
the
contract to provide that the extended test production of up to 30% of the direct
exploration costs of the wells is for Ecopetrol’s account only and serves as
reimbursement of its 30% back in to the Guayuyaco discovery. Argosy’s contention
is that this amount is the recovery of an amount equal to 30% of the direct
exploration costs of the wells and not exclusively for the benefit of Ecopetrol.
While Argosy believes its interpretation of the Guayuyaco Association Contract
is correct, the resolution of this issue is outstanding pending agreement among
the parties or determination through legal proceedings. The estimated value
of
the disputed extended test production is $2,361,188 with possible costs shared
of 50% ($1,180,594) with the Company’s joint venture partner in the contract. No
amount has been accrued in the financial statements related to this disagreement
because the Company believes the probability of a negative outcome is low at
this time.
F-21
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
11.
Financial Instruments and Credit Risk
|
Financial
Derivative Loss
|
Year
Ended December 31, 2007
|
|||
|
Realized
financial derivative loss
|
$
|
391,345
|
||
|
Current
portion of unrealized financial derivative Loss
|
$
|
1,593,629
|
||
|
Long-term
portion of unrealized financial derivative loss
|
1,054,716
|
|||
|
Total
unrealized financial derivative loss
|
$
|
2,648,346
|
||
|
Financial
derivative loss
|
$
|
3,039,690
|
||
Under
the
terms of the Credit Facility with Standard Bank Plc, the Company was 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 the
June
30, 2006 Independent Reserve Evaluation Report projected aggregate net share
of
Colombian production after royalties for the three-year term of the Facility.
In
February 2007, the Company 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. The fair value of this derivative instrument was
determined by management based on quotes obtained from the counterparty to
the
derivative instrument.
The
Company’s financial instruments recognized in the balance sheet consist of cash,
accounts receivable, taxes receivable, other long-term assets, accounts payable,
current taxes payable, and accrued liabilities. The estimated fair values of
the
financial instruments have been determined based on the Company’s assessment of
available market information and appropriate valuation methodologies; however,
these estimates may not necessarily be indicative of the amounts that could
be
realized or settled in a market transaction. The fair values of financial
instruments approximate their book amounts due to the short-term maturity of
these instruments. Most of the Company’s accounts receivable relate to oil and
natural gas sales and are exposed to typical industry credit risks. The Company
manages this credit risk by entering into sales contracts with only credit
worthy entities and reviewing its exposure to individual entities on a regular
basis. The book value of the accounts receivable reflects management’s
assessment of the associated credit risks.
12.
Credit Facility
On
February 28, 2007, the Company 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 the Company’s
petroleum reserves up to maximum of $50 million. The initial borrowing base
is
$7 million based on mid-year 2006 Independent Reserves Evaluation Report
and the borrowing base will be re-determined semi-annually based on reserve
evaluation reports. As a result of Standard Bank Plc’s review of our Mid-Year
2007 Independent Reserve Audit, the Company has received preliminary approval
to
increase our borrowing base to $20 million. 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 on the Company’s Colombian assets. The Company was 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 the mid-year
2006
Independent Reserve Evaluation Report projected aggregate net share of Colombian
production after royalties for the three-year term of the Facility. Under the
terms of the Facility, the Company is required to maintain compliance with
specified financial and operating covenants. As at December 31, 2007, the
Company has not drawn-down on this facility.
F-22
Supplementary
Data (Unaudited)
1)
Oil and Gas Producing Activities
The
following oil and gas information is provided in accordance with the
SFAS 69“Disclosures
about Oil and Gas Producing Activities.”
A.
Reserve Quantity Information
Our
net
proved reserves and changes in those reserves for operations are disclosed
below. The net proved reserves represent management’s best estimate of proved
oil and natural gas reserves after royalties. Reserve estimates for each
property are prepared internally each year and 100% of the reserves have been
assessed by independent qualified reserves consultants, Gaffney, Cline &
Associates.
Estimates
of crude oil and natural gas proved reserves are determined through analysis
of
geological and engineering data, and demonstrate reasonable certainty that
they
are recoverable from known reservoirs under economic and operating conditions
that existed at year end. See Critical Accounting Estimates in Item 6 for a
description of Gran Tierra Energy’s reserves estimation process.
PROVED
RESERVES NET OF ROYALTIES (2)
|
Crude
oil is in Bbl and
|
Argentina
(4)
|
Colombia
|
Total
|
||||||||||||||||
|
natural
gas is in million cubic feet
|
Oil
|
Gas
|
Oil
|
Gas
|
Oil
|
Gas
|
|||||||||||||
|
Extensions
and Discoveries
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||
|
Purchases
of Reserves in Place
|
618,703
|
84
|
—
|
—
|
618,703
|
84
|
|||||||||||||
|
Production
|
(36,011
|
)
|
(60
|
)
|
—
|
—
|
(36,011
|
)
|
(60
|
)
|
|||||||||
|
Revisions
of Previous Estimates
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||
|
Proved
developed and undeveloped reserves, December 31,
2005
|
582,692
|
24
|
—
|
—
|
582,692
|
24
|
|||||||||||||
|
Extensions
and Discoveries
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||
|
Purchases
of Reserves in Place
|
1,302,720
|
732
|
1,229,269
|
—
|
2,531,989
|
732
|
|||||||||||||
|
Production
|
(127,712
|
)
|
(30
|
)
|
(134,269
|
)
|
—
|
(261,981
|
)
|
(30
|
)
|
||||||||
|
Revisions
of Previous Estimates (3)
|
137,300
|
739
|
—
|
—
|
137,300
|
739
|
|||||||||||||
|
Proved
developed and undeveloped reserves, December 31,
2006
|
1,895,000
|
1,465
|
1,095,000
|
—
|
2,990,000
|
1,465
|
|||||||||||||
|
Extensions
and Discoveries
|
—
|
—
|
3,477,000
|
—
|
3,477,000
|
—
|
|||||||||||||
|
Purchases
of Reserves in Place
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||
|
Production
|
(207,912
|
)
|
(27
|
)
|
(333,157
|
)
|
—
|
(541,069
|
)
|
(27
|
)
|
||||||||
|
Revisions
of Previous Estimates (3)
|
347,912
|
(1,438
|
)
|
144,157
|
—
|
492,069
|
(1,438
|
)
|
|||||||||||
|
Proved
developed and undeveloped reserves, December 31,
2007
|
2,035,000
|
—
|
4,383,000
|
—
|
6,418,000
|
—
|
|||||||||||||
|
Proved
developed reserves, December 31, 2005 (1)
|
463,892
|
24
|
—
|
—
|
463,892
|
24
|
|||||||||||||
|
Proved
developed reserves, December 31, 2006 (1)
|
1,413,000
|
1,465
|
1,034,000
|
—
|
2,447,000
|
1,465
|
|||||||||||||
|
Proved
developed reserves, December 31, 2007 (1)
|
1,819,000
|
—
|
3,444,000
|
—
|
5,263,000
|
—
|
|||||||||||||
|
(1)
|
|
Proved
developed oil and gas reserves are expected to be recovered through
existing wells with existing equipment and operating
methods.
|
|
(2)
|
|
Proved
oil and gas reserves are the estimated quantities of natural gas,
crude
oil, condensate and natural gas liquids that geological and engineering
data demonstrate with reasonable certainty can be recovered in future
years from known reservoirs under existing economic and operating
conditions. Reserves are considered “proved” if they can be produced
economically, as demonstrated by either actual production or conclusive
formation testing.
|
F-23
|
(3)
|
|
Reserves
at El Vinalar increased due to the completion of the sidetrack well
Puesto
Climaco-2.
|
|
|
|
|
|
(4)
|
|
Argentina
reserves for 2005 and 2007 include natural gas
liquids.
|
B.
Capitalized Costs
|
|
Proved
|
Unproved
|
Accumulated
|
Capitalized
|
|||||||||
|
|
Properties
|
Properties
|
DD&A
|
Costs
|
|||||||||
|
Capitalized
Costs, December 31, 2006
|
$
|
41,975,679
|
$
|
18,333,054
|
$
|
(4,215,449
|
)
|
$
|
56,093,284
|
||||
|
Argentina
|
2,418,942
|
(785,637
|
)
|
(2,418,683
|
)
|
(785,378
|
)
|
||||||
|
Colombia
|
13,437,833
|
706,568
|
(6,906,119
|
)
|
7,238,282
|
||||||||
|
Capitalized
Costs, December 31, 2007
|
$
|
57,832,454
|
$
|
18,253,985
|
$
|
(13,540,251
|
)
|
$
|
62,546,188
|
||||
C.
Costs Incurred - Period Ended December 31, 2007
|
|
Oil
and Gas
|
|||||||||
|
|
Argentina
|
Colombia
|
Total
|
|||||||
|
Total
Costs Incurred before DD&A
|
||||||||||
|
Property
Acquisition Costs
|
||||||||||
|
Proved
|
$
|
7,087,858
|
$
|
—
|
$
|
7,087,858
|
||||
|
Unproved
|
12,588
|
—
|
12,588
|
|||||||
|
Exploration
Costs
|
—
|
—
|
—
|
|||||||
|
Development
Costs
|
1,231,231
|
—
|
1,231,231
|
|||||||
|
Year
ended December 31, 2005
|
$
|
8,331,677
|
—
|
$
|
8,331,677
|
|||||
|
Property
Acquisition Costs
|
||||||||||
|
Proved
|
$
|
8,440,090
|
$
|
18,344,514
|
$
|
26,784,604
|
||||
|
Unproved
|
3,921,255
|
14,399,211
|
18,320,466
|
|||||||
|
Exploration
Costs
|
—
|
5,777,318
|
5,777,318
|
|||||||
|
Development
Costs
|
1,033,680
|
—
|
1,033,680
|
|||||||
|
Year
ended December 31, 2006
|
$
|
21,726,702
|
$
|
38,521,043
|
$
|
60,247,745
|
||||
|
Property
Acquisition Costs
|
||||||||||
|
Proved
|
$
|
—
|
$
|
—
|
$
|
—
|
||||
|
Unproved
|
—
|
—
|
—
|
|||||||
|
Exploration
Costs
|
—
|
10,074,707
|
10,074,707
|
|||||||
|
Development
Costs
|
1,633,305
|
4,069,694
|
5,702,999
|
|||||||
|
Year
ended December 31, 2007
|
$
|
23,360,007
|
$
|
52,665,444
|
$
|
76,025,451
|
||||
F-24
D.
Results of Operations for Producing Activities - Period Ended December 31,
2007
|
|
Argentina
|
|
Colombia
|
|
Total
|
|||||
|
Year
ended December 31, 2005
|
||||||||||
|
Net
Sales
|
$
|
1,059,297
|
—
|
$
|
1,059,297
|
|||||
|
Production
Costs
|
(395,287
|
)
|
—
|
(395,287
|
)
|
|||||
|
Exploration
Expense
|
—
|
—
|
—
|
|||||||
|
DD&A
|
(444,853
|
)
|
—
|
(444,853
|
)
|
|||||
|
Other
expenses/(income)
|
—
|
—
|
—
|
|||||||
|
Income
Taxes
|
(76,705
|
)
|
—
|
(76,705
|
)
|
|||||
|
Results
of Operations
|
$
|
142,452
|
—
|
$
|
142,452
|
|||||
|
Year
ended December 31, 2006
|
||||||||||
|
Net
Sales
|
$
|
5,108,851
|
$
|
6,612,190
|
$
|
11,721,041
|
||||
|
Production
Costs
|
(2,846,705
|
)
|
(1,386,765
|
)
|
(4,233,470
|
)
|
||||
|
Exploration
Expense
|
—
|
—
|
—
|
|||||||
|
DD&A
|
(1,550,543
|
)
|
(2,494,317
|
)
|
(4,044,860
|
)
|
||||
|
Other
expenses/(income)
|
—
|
—
|
—
|
|||||||
|
Income
Tax Provision
|
132,357
|
(809,737
|
)
|
(677,380
|
)
|
|||||
|
Results
of Operations
|
$
|
843,960
|
$
|
1,921,371
|
$
|
2,765,331
|
||||
|
Year
ended December 31, 2007
|
||||||||||
|
Net
Sales
|
$
|
8,104,457
|
$
|
23,748,155
|
$
|
31,852,612
|
||||
|
Production
Costs
|
(6,327,276
|
)
|
(4,097,336
|
)
|
(10,424,612
|
)
|
||||
|
Exploration
Expense
|
—
|
—
|
—
|
|||||||
|
DD&A
|
(2,476,834
|
)
|
(6,850,086
|
)
|
(9,326,920
|
)
|
||||
|
Other
expenses/(income)
|
—
|
—
|
—
|
|||||||
|
Income
Tax Provision
|
1,065,423
|
(1,354,082
|
)
|
(288,659
|
)
|
|||||
|
Results
of Operations
|
$
|
365,770
|
$
|
11,446,651
|
$
|
11,812,421
|
||||
E.
Standardized Measure of Discounted Future Net Cash Flows and
Changes
The
following disclosure is based on estimates of net proved reserves and the period
during which they are expected to be produced. Future cash inflows are computed
by applying year end prices to Gran Tierra Energy’s after royalty share of
estimated annual future production from proved oil and gas reserves. The
calculated weighted average oil prices at December 31, 2007 were $71.28 for
Colombia and $38.76 for Argentina. The calculated weighted average oil prices
at
December 31, 2006 were $48.66 for Colombia and $36.78 for Argentina. The
weighted average oil price used for Argentina at December 31, 2005 was
$20.42. Future development and production costs to be incurred in producing
and
further developing the proved reserves are based on year end cost indicators.
Future income taxes are computed by applying year end statutory tax rates.
These
rates reflect allowable deductions and tax credits, and are applied to the
estimated pre-tax future net cash flows.
Discounted
future net cash flows are calculated using 10% mid-period discount factors.
The
calculations assume the continuation of existing economic, operating and
contractual conditions. However, such arbitrary assumptions have not proved
to
be the case in the past. Other assumptions could give rise to substantially
different results.
The
Company believes this information does not in any way reflect the current
economic value of its oil and gas producing properties or the present value
of
their estimated future cash flows as:
|
·
|
|
no
economic value is attributed to probable and possible
reserves;
|
|
|
|
|
|
·
|
|
use
of a 10% discount rate is arbitrary; and
|
|
|
|
|
|
·
|
|
prices
change constantly from year end
levels.
|
F-25
|
|
Argentina
|
Colombia
|
Total
|
|||||||
|
December 31,
2005
|
||||||||||
|
Future
Cash Inflows
|
$
|
25,445,000
|
—
|
$
|
25,445,000
|
|||||
|
Future
Production Costs
|
(11,965,000
|
)
|
—
|
(11,965,000
|
)
|
|||||
|
Future
Development Costs
|
—
|
—
|
—
|
|||||||
|
Future
Site Restoration Costs
|
—
|
—
|
—
|
|||||||
|
Future
Income Tax
|
(1,575,000
|
)
|
—
|
(1,575,000
|
)
|
|||||
|
Future
Net Cash Flows
|
11,905,000
|
—
|
11,905,000
|
|||||||
|
10%
Discount Factor
|
(2,725,000
|
)
|
—
|
(2,725,000
|
)
|
|||||
|
Standardized
Measure
|
$
|
9,180,000
|
—
|
$
|
9,180,000
|
|||||
|
December 31,
2006
|
||||||||||
|
Future
Cash Inflows
|
$
|
72,151,000
|
$
|
53,332,000
|
$
|
125,483,000
|
||||
|
Future
Production Costs
|
(24,385,000
|
)
|
(14,958,000
|
)
|
(39,343,000
|
)
|
||||
|
Future
Development Costs
|
(9,102,000
|
)
|
(2,307,000
|
)
|
(11,409,000
|
)
|
||||
|
Future
Site Restoration Costs
|
(872,000
|
)
|
—
|
(872,000
|
)
|
|||||
|
Future
Income Tax
|
(12,849,280
|
)
|
(12,262,780
|
)
|
(25,112,060
|
)
|
||||
|
Future
Net Cash Flows
|
24,942,720
|
23,804,220
|
48,746,940
|
|||||||
|
10%
Discount Factor
|
(7,685,627
|
)
|
(6,193,490
|
)
|
(13,879,117
|
)
|
||||
|
Standardized
Measure
|
$
|
17,257,093
|
$
|
17,610,730
|
$
|
34,867,823
|
||||
|
December 31,
2007
|
||||||||||
|
Future
Cash Inflows
|
$
|
79,777,000
|
$
|
393,164,000
|
$
|
472,941,000
|
||||
|
Future
Production Costs
|
(20,001,000
|
)
|
(54,760,000
|
)
|
(74,761,000
|
)
|
||||
|
Future
Development Costs
|
(8,658,000
|
)
|
(21,350,000
|
)
|
(30,008,000
|
)
|
||||
|
Future
Site Restoration Costs
|
(617,000
|
)
|
(2,568,000
|
)
|
(3,185,000
|
)
|
||||
|
Future
Income Tax
|
(17,716,000
|
)
|
(98,998,000
|
)
|
(116,714,000
|
)
|
||||
|
Future
Net Cash Flows
|
32,785,000
|
215,488,000
|
248,273,000
|
|||||||
|
10%
Discount Factor
|
(8,435,000
|
)
|
(43,554,000
|
)
|
(51,989,000
|
)
|
||||
|
Standardized
Measure
|
$
|
24,350,000
|
$
|
171,934,000
|
$
|
196,284,000
|
||||
Changes
in the Standardized Measure of Discounted Future Net Cash
Flows
The
following are the principal sources of change in the standardized measure of
discounted future net cash flows:
|
|
2007
|
2006
|
2005
|
|||||||
|
Beginning
of Year
|
$
|
34,867,823
|
$
|
9,180,000
|
$
|
—
|
||||
|
Sales
and Transfers of Oil and Gas Produced, Net of Production
Costs
|
(21,428,000
|
)
|
(7,487,571
|
)
|
(664,010
|
)
|
||||
|
Net
Changes in Prices and Production Costs Related to Future
Production
|
7,399,396
|
1,943,293
|
—
|
|||||||
|
Extensions,
Discoveries and Improved Recovery, Less Related Costs
|
204,151,000
|
—
|
—
|
|||||||
|
Development
Costs Incurred during the Period
|
5,702,999
|
1,033,680
|
||||||||
|
Revisions
of Previous Quantity Estimates
|
34,880,088
|
1,522,696
|
—
|
|||||||
|
Accretion
of Discount
|
4,874,694
|
1,190,500
|
—
|
|||||||
|
Purchases
of Reserves in Place
|
-
|
29,514,395
|
9,844,010
|
|||||||
|
Sales
of Reserves in Place
|
-
|
—
|
—
|
|||||||
|
Net
change in Income Taxes
|
(74,164,000
|
)
|
(2,029,170
|
)
|
—
|
|||||
|
Other
|
-
|
—
|
—
|
|||||||
|
End
of Year
|
$
|
196,284,000
|
$
|
34,867,823
|
$
|
9,180,000
|
||||
F-26
Financial
Statements
March 31,
2006 and the period ended March 31, 2006 (Unaudited)
Statements
of Income (Unaudited)
For
the
Three Months Ended March 31, 2006 and 2005
(Expressed
in thousands of US dollars)
|
2006
|
2005
|
||||||
|
Oil
sales to Ecopetrol
|
$
|
3,575
|
1,521
|
||||
|
|
|||||||
|
Operating
cost (note 8)
|
367
|
364
|
|||||
|
Depreciation,
depletion and amortization
|
190
|
80
|
|||||
|
General
and administrative expenses
|
282
|
148
|
|||||
|
|
839
|
592
|
|||||
|
Operating
profit
|
2,736
|
929
|
|||||
|
|
|||||||
|
Other
income, net
|
79
|
116
|
|||||
|
Income
before income and remittance taxes
|
2,815
|
1,045
|
|||||
|
|
|||||||
|
Current
income tax (note 9)
|
1,017
|
370
|
|||||
|
Deferred
remittance tax
|
109
|
42
|
|||||
|
Total
income and remittance taxes
|
1,126
|
412
|
|||||
|
|
|||||||
|
Net
income
|
$
|
1,689
|
633
|
See
accompanying notes to unaudited financial statements.
F-27
Balance
Sheets (Unaudited)
March 31,
2006 and December 31, 2005
(Expressed
in thousands of US dollars)
|
March
31,
2006
|
December
31,
2005
|
||||||
|
Assets
|
|
|
|||||
|
Current
assets:
|
|
|
|||||
|
Cash
and cash equivalents (note 3)
|
$
|
2,670
|
7,124
|
||||
|
Accounts
receivable, net (note 4)
|
3,898
|
951
|
|||||
|
Accounts
receivable reimbursement Ecopetrol
|
1,186
|
1,186
|
|||||
|
Inventories:
|
|||||||
|
Crude
oil
|
211
|
218
|
|||||
|
Materials
and supplies
|
626
|
557
|
|||||
|
|
837
|
775
|
|||||
|
Total
current assets
|
8,591
|
10,036
|
|||||
|
|
|||||||
|
Other
long-term assets
|
25
|
16
|
|||||
|
Property,
plant and equipment (note 5):
|
|||||||
|
Unproved
properties
|
3,831
|
3,622
|
|||||
|
Proved
properties
|
5,305
|
5,401
|
|||||
|
|
9,136
|
9,023
|
|||||
|
|
|||||||
|
Total
assets
|
$
|
17,752
|
19,075
|
||||
|
|
|||||||
|
Liabilities
and Partners’ Equity
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable
|
4,852
|
4,979
|
|||||
|
Tax
payable
|
1,721
|
1,326
|
|||||
|
Employee
benefits
|
97
|
103
|
|||||
|
Accrued
liabilities
|
547
|
522
|
|||||
|
Total
current liabilities
|
7,217
|
6,930
|
|||||
|
|
|||||||
|
Long-term
accounts payable (note 10)
|
686
|
686
|
|||||
|
Deferred
income tax
|
473
|
475
|
|||||
|
Deferred
remittance tax
|
1,210
|
1,104
|
|||||
|
Pension
plan
|
—
|
—
|
|||||
|
|
|||||||
|
Total
liabilities
|
9,586
|
9,195
|
|||||
|
Partners’
equity (note 7)
|
8,166
|
9,880
|
|||||
|
Total
liabilities and partners’ equity
|
$
|
17,752
|
19,075
|
||||
|
|
|||||||
See
accompanying notes to unaudited financial statements.
F-28
Statements
of Cash Flows (Unaudited)
For
the
Three Months Ended March 31, 2006 and 2005
(Expressed
in thousands of US dollars)
|
2006
|
2005
|
||||||
|
Cash
flows from operating activities:
|
|
|
|||||
|
Net
income
|
$
|
1,689
|
633
|
||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||||
|
Depreciation,
depletion and amortization
|
190
|
80
|
|||||
|
Deferred
remittance tax
|
109
|
42
|
|||||
|
Changes
in assets and liabilities:
|
|||||||
|
Accounts
receivable
|
(3,147
|
)
|
(839
|
)
|
|||
|
Inventories
|
(62
|
)
|
58
|
||||
|
Accounts
payable
|
(127
|
)
|
202
|
||||
|
Tax
payable
|
395
|
99
|
|||||
|
Employee
benefits
|
(6
|
)
|
48
|
||||
|
Accrued
Liabilities
|
25
|
491
|
|||||
|
Deferred
income tax
|
(2
|
)
|
1
|
||||
|
Deferred
remittance tax
|
(3
|
)
|
4
|
||||
|
Pensions
|
—
|
(5
|
)
|
||||
|
Net
cash (used in) provided by operating activities
|
(939
|
)
|
814
|
||||
|
|
|||||||
|
Cash
flows from investing activities:
|
|||||||
|
Increase
in long term investments
|
(9
|
)
|
(1
|
)
|
|||
|
Payments
from Petroleum Equipment International - Talora
|
200
|
—
|
|||||
|
Additions
to property, plant and equipment
|
(303
|
)
|
(767
|
)
|
|||
|
Net
cash used in investing activities
|
(112
|
)
|
(768
|
)
|
|||
|
|
|||||||
|
Cash
flows from financial activities:
|
|||||||
|
Bank
overdrafts
|
—
|
106
|
|||||
|
Distributions
to partners
|
(3,250
|
)
|
—
|
||||
|
Aviva
redemption shares
|
(153
|
)
|
—
|
||||
|
|
|||||||
|
Net
cash (used in) provided by financial activities
|
(3,403
|
)
|
106
|
||||
|
|
|||||||
|
(Decrease)
increase in cash and cash equivalents
|
(4,454
|
)
|
152
|
||||
|
Cash
and cash equivalents at beginning of year
|
7,124
|
6,954
|
|||||
|
Cash
and cash equivalents at end of the period
|
$
|
2,670
|
7,106
|
||||
|
|
|||||||
See
accompanying notes to unaudited financial statements.
F-29
Statements
of Partners’ Equity (Unaudited)
For
the
Three Months Ended March 31, 2006 and the Year Ended December 31,
2005
(Expressed
in thousands of US dollars)
|
Limited
partners’
capital
|
General
partners’
capital
|
Total
partners’
equity
|
||||||||
|
Balance
as of December 31, 2005
|
9,810
|
70
|
9,880
|
|||||||
|
Redemption
of partnership payments interest - Aviva Overseas Inc. (note
10)
|
(152
|
)
|
(1
|
)
|
(153
|
)
|
||||
|
Distributions
to partners
|
(3,227
|
)
|
(23
|
)
|
(3,250
|
)
|
||||
|
Net
income
|
1,677
|
12
|
1,689
|
|||||||
|
Balance
as of March 31, 2006
|
$
|
8,108
|
58
|
8,166
|
||||||
|
|
||||||||||
See
accompanying notes to unaudited financial statements.
F-30
Notes
to
Financial Statements (Unaudited)
March 31,
2006 and 2005
(Expressed
in thousands of US dollars)
|
(1)
|
|
Business
Activities
|
|
|
|
|
|
|
|
Argosy
Energy International, LP is a Utah (USA) Limited Partnership, which
established a Colombian Branch in 1983.
|
|
|
|
|
|
|
|
Argosy
Energy International, LP is engaged in the business of exploring
for,
developing and producing oil and gas. The principal properties and
operations are located in Colombia, which are carried out through
its
Colombian Branch in the Putumayo, Cauca, Tolima and Cundinamarca
Provinces. The oil production is sold to Empresa Colombiana de Petróleos,
the Colombian National Oil Company, (“Ecopetrol”).
|
|
|
|
|
|
|
|
There
are risks involved in conducting oil and gas activities in remote,
rugged
and primitive regions of Colombia. The guerrillas have operated within
Colombia for many years and expose the Company’s operations to potentially
detrimental activities. The guerrillas are present in the Putumayo
and Río
Magdalena areas where the Company’s properties are located. Since 1998,
the Company has only experienced minor attacks on pipelines and
equipment.
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
As
of March 31, 2006, Argosy was participating in the following
Association Contracts signed with Ecopetrol and Exploration and
Exploitation Contracts signed with the Hydrocarbons National Agency
-
ANH.
|
|
Contract
|
Participation
|
|
Operator
|
|
Phase
|
|||||
|
Santana
|
35
|
%
|
ARGOSY
|
Exploitation
|
||||||
|
Guayuyaco
|
70
|
%
|
ARGOSY
|
Exploitation
|
||||||
|
Aporte
Putumayo
|
100
|
%
|
ARGOSY
|
Abandonment
|
||||||
|
Río
Magdalena
|
70
|
%
|
ARGOSY
|
Exploration
|
||||||
|
Talora
|
20
|
%
|
ARGOSY
|
Exploration
|
||||||
|
Chaza
|
50
|
%
|
ARGOSY
|
Exploration
|
||||||
|
|
|
The
first four contracts have been signed with ECOPETROL and the last
two with
ANH.
|
|
|
|
|
|
|
|
An
association contracts are those where the Government participate
as
partner of the field through the national oil company —
ECOPETROL.
|
|
|
|
|
|
|
|
Exploration
and production contracts (E&P) are those signed with the ANH —
“Agencia Nacional de Hidrocarburos” (National Agency for Hydrocarbons) in
which the Government only receive royalties and taxes for the rights
of
exploration and production but there is not a participation from
the
national oil company - ECOPETROL or any other government
entity.
|
(Continued)
F-31
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
|
|
|
The
main terms of the above-mentioned contracts are as
follows:
|
|
|
|
|
|
|
|
Santana
Association Contract
|
|
|
|
|
|
|
|
On
May 27, 1987 (effective date July 27, 1987), Argosy Energy
International, LP signed this association contract to explore for
and
produce oil, in the area called Santana. The contract is in its 19th
year
and the Company reduced the area to a 5 kilometer reserve area around
each
field. The remaining contract area is approximately 1,100
acres.
|
|
|
|
|
|
|
|
Under
the terms of the contract with Ecopetrol, a minimum of 25% of all
revenues
from oil sold to Ecopetrol is paid in Colombian pesos, which may
only be
utilized in Colombia. However, this proportion can be modified through
parties agreement.
|
|
|
|
|
|
|
|
Aporte
Putumayo - Association Contract
|
|
|
|
|
|
|
|
The
Aporte Putumayo area has been returned to the Government. Such devolution
is subject to the approval of the environmental restoration of the
region
by the Environmental Ministry and the wells abandonment have to be
approved by Ecopetrol and the Ministry of Mines.
|
|
|
|
|
|
|
|
Río
Magdalena Association Contract
|
|
|
|
|
|
|
|
On
December 10, 2001 (effective date February 8, 2002), Argosy
Energy International, LP and Ecopetrol signed this Association Contract,
to explore and produce oil, in the area called Río Magdalena of
approximately 145,000 acres, located in the Middle Magdalena Valley
of
Colombia in the provinces of Cundinamarca and Tolima.
|
|
|
|
|
|
|
|
The
contract has a maximum duration of 28 years distributed as follows:
an exploration period of 6 years and a production period of 22 years
starting on the date of termination of the exploration period. The
exploratory well, Popa-1 was drilled during June and July, 2006 and
is on
the completion stage.
|
|
|
|
|
|
|
|
Upon
finalization of each phase, Argosy has the option to relinquish the
contract, once completed the obligations for each
phase.
|
|
|
|
|
|
|
|
BT
Letter Agreement
|
|
|
|
|
|
|
|
On
February 27, 2001 Argosy Energy International, LP signed a letter
agreement with BT Operating Company for the acquisition and management
of
the Río Magdalena Exploration Area. BT and Argosy mutually agreed to pay
their 50% share of costs under the terms of the Ecopetrol Association
contract and provide certain services toward management and compliance
of
the obligations.
|
|
|
|
|
|
|
|
As
of March 31, 2006 BT had not paid their obligations under this
agreement and outstanding accounts receivable of $355 related to
their
share of cost related to the Río Magdalena Association Contract were
provisioned as bad debts.
|
(Continued)
F-32
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
|
|
|
Guayuyaco
Association Contract
|
|
|
|
|
|
|
|
On
August 2, 2002 (effective date September 30, 2002) Argosy Energy
International, LP signed this association contract with Ecopetrol,
to
explore and produce oil, in the area called Guayuyaco. This Association
contract gives Argosy the right to explore potential reserves in
prospects
adjacent to the existing Santana oil field. The block is located
in the
Putumayo and Cauca provinces and covers approximately 52.000 acres
originally held under the Santana Risk Sharing
Agreement.
|
|
|
|
|
|
|
|
The
Guayuyaco contract has a maximum duration of 27.5 years with an
exploration period of 5.5 years and a production period of
22 years, which starts upon termination of the exploration
period.
|
|
|
|
|
|
|
|
During
the second exploration phase, two wells were drilled (Guayuyaco-1
and
Guayuyaco-2) which were successful. Therefore, on December 28, 2005
Ecopetrol accepted the Commerciality of the field.
|
|
|
|
|
|
|
|
Solana
Petroleum Exploration Commercial Agreement
|
|
|
|
|
|
|
|
Argosy
and Solana Petroleum Exploration entered into a commercial agreement
in
2003 whereby, Solana through fulfillment of certain obligations could
earn
a participating interest in the Inchiyaco Well Prospect (Santana
Association Contract) and have an option to enter the next exploration
prospect under the Guayuyaco Association Contract. Inchiyaco-1 was
drilled
and completed as a producing well in 2003 resulting in Solana’s sharing
26.21% interest in Argosy’s net share of the prospect.
|
|
|
|
|
|
|
|
The
commercial agreement was revised in 2004, giving Solana the right
to share
a 50% interest in Argosy’s net share of the Guayuyaco association contract
by paying 66.7% of two exploratory wells (Guayuyaco-1 and Juanambu-1)
and
50% for a new seismic program and additional projects.
|
|
|
|
|
|
|
|
Talora
Exploration and Exploitation Contract
|
|
|
|
|
|
|
|
On
September 16, 2004 (effective date) Argosy and the National
Hydrocarbons Agency (ANH) signed the Talora Exploration and
Exploitation Contract to explore and produce oil, in an area of
approximately 108,000 acres located in Tolima and Cundinamarca
Provinces.
|
|
|
|
|
|
|
|
The
contract has a maximum duration of 30 years with an exploration
period of 6 years and a production period of 24 years, which
starts upon the date in which Argosy receives the oil field commerciality
declaration from ANH.
|
|
|
|
|
|
|
|
The
contract may be relinquished at the end of each phase after fulfillment
of
the agreed obligations.
|
(Continued)
F-33
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
|
|
|
Argosy
and Petroleum Equipment International (PEI) signed a commercial
agreement on March 9, 2006. Through fulfillment of certain
obligations PEI could earn an 80% of Argosy’s interest under the ANH
contract on the Talora Block. In conjunction with such assignment,
Argosy
shall designate PEI as the operator previous approval of the
ANH.
|
|
|
|
|
|
|
|
Contractual
Commitments:
|
|
Phase
|
|
Starting
date
|
|
Obligations
|
|
3
|
|
December
16, 2006
|
|
One
exploratory well.
|
|
4
|
|
December
16, 2007
|
|
One
exploratory well.
|
|
5
|
|
December
16, 2008
|
|
One
exploratory well.
|
|
6
|
|
December
16, 2009
|
|
One
exploratory well.
|
|
|
|
The
contract may be relinquished at the end of each phase after fulfillment
of
the agreed obligations.
|
|
|
|
|
|
|
|
Chaza
Exploration and Exploitation Contract
|
|
|
|
|
|
|
|
On
June 27, 2005 (effective date) Argosy and the National Hydrocarbons
Agency (ANH) signed the Chaza Exploration and Exploitation Contract
to explore and produce oil, in an area of approximately 80,000 acres
located in Putumayo and Cauca Provinces.
|
|
|
|
|
|
|
|
The
contract has a maximum duration of 30 years with an exploration
period of 6 years and a production period of 24 years, which
starts upon the date in which Argosy receives the oil field commerciality
declaration from ANH.
|
|
|
|
|
|
|
|
The
ANH’s Resolution 0217, dated September 13, 2005, approved the 2005
assignment of 50% interest of the contract to Solana Petroleum
Exploration.
|
|
|
|
|
|
|
|
Contractual
Commitments:
|
|
Phase
|
|
Starting
date
|
|
Obligations
|
|
2
|
|
June
27, 2006
|
|
One
exploratory well.
|
|
3
|
|
June
27, 2007
|
|
One
exploratory well.
|
|
4
|
|
December
27, 2008
|
|
One
exploratory well.
|
|
5
|
|
December
27, 2009
|
|
One
exploratory well.
|
|
6
|
|
December
27, 2010
|
|
One
exploratory well.
|
|
|
|
The
contract may be relinquished at the end of each phase after fulfillment
of
the agreed obligations.
|
(Continued)
F-34
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
|
(2)
|
|
Summary
of Significant Accounting Policies and
Practices
|
(a)
Foreign
Currency Translation
|
|
|
The
transactions and accounts of the Company’s operations denominated in
currencies other than US dollars are re-measured into United States
dollars in accordance with Statement of Financial Accounting Standards
FAS
52. The United States dollar is used as the functional currency.
Exchange
adjustments resulting from foreign currency balances are recognized
in
expense or income in the current
period.
|
(b)
Cash
Equivalents
|
|
|
Cash
equivalents are highly liquid investments purchased with an original
maturity of three months or less.
|
(c)
Inventories
|
|
|
Inventories
consist of crude oil and materials and supplies and are stated at
the
lower of cost or market.
|
(d)
Property,
Plant and Equipment
|
|
|
The
Company follows the full cost method to account for exploration and
development of oil and gas reserves whereby all productive and
nonproductive costs are capitalized. The only cost center is Colombia.
All
capitalized costs plus the undiscounted future development costs
of proved
reserves are depleted using the unit of production method based on
total
proved reserves applicable to the country.
|
|
|
|
|
|
|
|
Proved
oil and gas reserves are the estimated quantities of crude oil that
geological and engineering data demonstrate with reasonable certainty
can
be recovered in future years from known reservoirs under existing
economic
and operating conditions considering future production and development
costs.
|
|
|
|
|
|
|
|
Costs
related to initial exploration activities with no proved reserves
are
initially capitalized and periodically evaluated for impairment.
The
Company capitalizes internal costs directly identified with exploration
and development activities. The net capitalized costs of oil properties
are subject to a ceiling test, which limits such pooled costs to
the
aggregate of the present value of future net revenues attributable
to
proved oil and gas reserves discounted at 10% plus the lower of cost
or
market value of unproved properties. If capitalized costs exceed
this
limit, the excess is charged to expense and reflected as additional
accumulated depreciation, depletion and amortization.
|
|
|
|
|
|
|
|
While
the quantities of proved reserves require substantial judgment, the
associated prices of oil reserves that are included in the discounted
present value of the reserves are objectively determined. The ceiling
test
calculation requires use of prices and costs in effect as of the
last day
of the accounting period, which are generally held constant for the
life
of the properties. As a result, the present value is not necessarily
an
indication of the fair value of the reserves. Oil and gas prices
have
historically been volatile and the prevailing prices at any given
time may
not reflect our Partnership’s or the industry’s forecast of future
prices.
|
(Continued)
F-35
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
|
|
|
Gain
or loss on the sale or other disposition of oil and gas properties
is not
recognized, unless the gain or loss would significantly alter the
relationship between capitalized costs and proved reserves of oil
and gas
attributable to a country.
|
|
|
|
|
|
|
|
Support
equipment and facilities are depreciated using the unit of production
method based on total reserves of the field related to the support
equipment and facilities.
|
|
|
|
|
(e)
Environmental Liabilities and Expenditures
|
|
||
|
|
|
|
|
|
|
Argosy
accrues for losses associated with environmental remediation obligations
when such losses are probable and can be reasonably estimated. These
accruals are adjusted as further information develops or circumstances
change. Costs of future expenditures for environmental remediation
obligations are not discounted to their present
value.
|
(f)
Asset
Retirement Obligations
|
|
|
Liability
for asset retirement obligation is considered to be negligible at
this
time, based on projected production profiles, expiry dates and terms
of
the Association Contracts for current operations. However, the Company
has
accrued the costs related to environmental remediation and abandonment
of
the wells belonging to Aporte Putumayo
Contract.
|
(g)
Concentration
of Credit Risks
|
|
|
All
of the Company’s production is sold to Ecopetrol; the sale price is agreed
between both parts, according to local regulations in
Colombia.
|
(h) Income
Taxes
|
|
|
Deferred
income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax basis and operating loss. Deferred tax assets and liabilities
are
measured using enacted tax rates expected to apply to taxable income
in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of
a change in tax rates is recognized in income in the period that
includes
the enactment date.
|
(Continued)
F-36
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
(i) Financial
Instruments Fair Value
|
|
|
The
carrying amounts of cash and cash equivalents approximate fair value
because of the short maturity of those instruments. The carrying
value of
other on-balance-sheet financial instruments approximates fair value,
and
the cost, if any, to terminate off-balance-sheet financial instruments
is
not significant.
|
(j) Employee
Benefits
|
|
|
The
Company recognizes the obligations with its employees in accordance
with
the current Colombian labor law. These obligations include the severance
indemnity and the legal service bonus each one equivalent to a monthly
salary per year and interest on severance at the rate of 12% on the
balance of severance indemnities paid. The relevant liability for
these
two concepts is shown under the “Employee benefits” account as current
liabilities at the closing of the
period.
|
(k) Defined
Benefit Pension Plan
|
|
|
The
Company has a defined benefit pension plan covering one employee.
The
benefits are based on years of service, age and the employee’s
compensation. Currently, the cost of this program is not being funded.
The
actuarial study is performed at the end of each year in accordance
with
the guidelines established by FAS
87.
|
(l) 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,
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses
during
the reporting period.
|
(m) Revenue
Recognition
|
|
|
The
Company recognizes revenue when the crude oil is delivered to
Ecopetrol.
|
|
|
|
|
|
|
|
Ecopetrol
pays the oil sales invoicing 25% in local currency and the 75% in
US
Dollars, according to the terms of the Oil Sales Contract executed
between
Ecopetrol and Argosy, through which the oil sale price is fixed,
with
expiration dated November 1,
2006.
|
(n) Management
Fee
|
|
|
The
Company accounts for the management fees received from its partners
as
operator of the contracts as a less value of the operating
costs.
|
(Continued)
F-37
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
(o) Comprehensive
Income
|
|
|
For
each period presented in the accompanying statements of income,
comprehensive income and net income are the same
amount.
|
| (3) |
Cash
and Cash
Equivalents
|
|
|
|
The
following is a summary of cash and cash equivalents as of March 31,
2006 and December 31, 2005:
|
|
|
March
31,
|
December
31,
|
|||||
|
|
2006
|
2005
|
|||||
|
Held
in United States dollars
|
$
|
2,040
|
6,329
|
||||
|
Held
in Colombian pesos
|
157
|
394
|
|||||
|
Short-term
investments
|
473
|
401
|
|||||
|
|
$
|
2,670
|
7,124
|
||||
|
(4)
|
|
Accounts
Receivable
|
|
|
|
|
|
|
|
The
following is a summary of accounts receivable as of March 31, 2006
and December 31, 2005:
|
|
|
March
31,
|
December
31,
|
|||||
|
|
2006
|
2005
|
|||||
|
Trade
|
$
|
3,248
|
675
|
||||
|
B.T.O.
Río Magdalena Agreement
|
355
|
355
|
|||||
|
Vendor
Advances
|
177
|
172
|
|||||
|
Petroleum
Equipment Investments - Talora
|
300
|
—
|
|||||
|
Other
|
173
|
104
|
|||||
|
|
4,253
|
1,306
|
|||||
|
Less
allowance for bad debts
|
(355
|
)
|
(355
|
)
|
|||
|
|
$
|
3,898
|
951
|
||||
|
(5)
|
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
The
following is a summary of property, plant and equipment as of
March 31, 2006 and December 31,
2005:
|
|
|
March
31,
|
December
31,
|
|||||
|
|
2006
|
2005
|
|||||
|
Oil
properties:
|
|
|
|||||
|
Unproved
|
$
|
3,831
|
3,622
|
||||
|
Proved
|
59,190
|
59,096
|
|||||
|
|
63,021
|
62,718
|
|||||
|
Less
accumulated depreciation, depletion, and amortization
|
53,885
|
53,695
|
|||||
|
|
$
|
9,136
|
9,023
|
||||
Capitalized
Cost Unproved
F-38
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
Excluded
From the Capitalized Cost Being Amortized
|
|
|
|
|
|
|
Exploration
Cost
|
|
Cost
Incurred
|
|
Month
Anticipated
to
be
included
in
|
|
|||||||||||||||||
|
AFE
|
|
Contract
|
|
Detail
|
|
Dec-04
|
|
Dec-05
|
|
Mar-06
|
|
2004
|
|
2005
|
|
2006
|
|
Amortization
|
||||||||||
|
MARY
WELLWEST PROSPECT
|
Santana
|
Geological
&
Geophysical
Data
|
287
|
287
|
287
|
287
|
Dec-06
|
|||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
MARY
WEST WELL TESTING
|
Santana
|
Geological
&
Geophysical
Data
|
93
|
93
|
93
|
93
|
Dec-06
|
|||||||||||||||||||||
|
Expl.
100% NEW PROJECTS
|
New
Projects
|
Geological
&
Geophysical
Data
|
253
|
363
|
375
|
253
|
110
|
12
|
Dec-06
|
|||||||||||||||||||
|
Expl.
100% SANTANA
|
Guayuyaco
|
Geological
&
Geophysical
Data
|
1,044
|
1,044
|
1,044
|
1,044
|
Dec-06
|
|||||||||||||||||||||
|
Expl.
100% RIO MAGDALENA
|
Rio
Magdalena
|
Seismic
Program
|
634
|
808
|
889
|
634
|
174
|
81
|
Mar-07
|
|||||||||||||||||||
|
TALORA
PROJECT
|
Talora
|
Seismic
Program
|
1
|
89
|
134
|
1
|
88
|
44
|
Sep-07
|
|||||||||||||||||||
|
SEISMIC
GUAYUYACO
|
Guayuyaco
|
Seismic
Program
|
0
|
431
|
431
|
431
|
Dec-06
|
|||||||||||||||||||||
|
SEISMIC
CHAZA
|
Chaza
|
Seismic
Program
|
0
|
505
|
538
|
505
|
33
|
Sep-07
|
||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
POPA-1
WELL EXPLORATORY
|
Rio
Magdalena
|
Road
and Location Well
|
0
|
0
|
32
|
32
|
Mar-07
|
|||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
|
JUANAMBU-1
WELL EXPLORATORY
|
Guayuyaco
|
Road
and Location Well
|
0
|
2
|
8
|
2
|
6
|
Jun-07
|
||||||||||||||||||||
|
|
0
|
0
|
||||||||||||||||||||||||||
|
Total
Unproved Exploration
Costs
|
2,312
|
3,622
|
3,831
|
2,312
|
1,310
|
208
|
||||||||||||||||||||||
|
|
|
All
capital excluded from capital costs being amortized relates to exploration
cost. No acquisition costs, development costs or capitalized interest
costs are identified.
|
(Continued)
F-39
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
|
(6)
|
|
Pension
Plan
|
|
|
|
|
|
|
|
The
following is a detail of the components of pension cost as of
March 31, 2006 and 2005:
|
|
March
31,
|
March
31,
|
||||||
|
2006
|
2005
|
||||||
|
Interest
cost
|
$
|
8
|
8
|
||||
|
Expected
return of assets
|
(13
|
)
|
(6
|
)
|
|||
|
Amortization
of unrecognized net transition obligation (asset)
|
1
|
1
|
|||||
|
Net
periodic pension cost
|
$
|
(4
|
)
|
3
|
|||
|
(7)
|
|
Equity
|
|
|
|
|
|
|
|
Stockholders’
Capital
|
|
|
|
|
|
|
|
The
following is a detail of the stockholders’ participation in the capital as
of March 31, 2006 and December 31,
2005:
|
|
March
31,
|
December
31,
|
||||||
|
Stockholder
|
2006
|
2005
|
|||||
|
Crosby
Capital L.L.C.
|
$
|
98.75
|
98.75
|
||||
|
Argosy
Energy Corp. **
|
0.71
|
0.71
|
|||||
|
Dale
E. Armstrong
|
0.41
|
0.41
|
|||||
|
Richard
S. McKnight
|
0.13
|
0.13
|
|||||
|
$
|
100.0
|
100.00
|
|||||
|
**
|
|
Argosy
Energy Corp. is a general partner interest. All others are limited
partnership interests. Net income is allocated according to the
participation of each stockholder in the Company’s
capital.
|
|
|
|
Foreign
Exchange Restrictions
|
|
|
|
|
|
|
|
In
accordance with current legislation in Colombia, the branches of
foreign
companies in the oil industry are not under the obligation to refund
to
the Colombian exchange market the proceeds from their foreign currency
sales either inside or outside the country. The net proceeds from
oil
exports may be used by the branches of oil companies to reimburse
abroad
the capital and profits from the operation in Colombia. As a result
of
this foreign exchange liberation, the branch cannot purchase foreign
currency in the Colombian exchange market to remit profits, repatriate
capital, repay external debt or pay foreign currency
expenses.
|
|
|
|
|
|
|
|
Distributions
to Partners
|
|
|
|
|
|
|
|
On
March 30, 2006 the partners of Argosy Energy International resolved,
with the majority vote of its partners, distribute the amount of
$2,500 on
March 1, 2006 and $750 on March 30, 2006, ratably to each of its
partners.
|
(Continued)
F-40
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
|
(8)
|
|
Operating
Cost
|
|
|
|
|
|
|
|
The
following is a summary of operating cost incurred for the period
ended
March 31, 2006 and 2005:
|
|
March
31,
|
March
31,
|
||||||
|
2006
|
2005
|
||||||
|
Direct
labor
|
$
|
111
|
86
|
||||
|
Maintenance,
materials and lubricants
|
86
|
49
|
|||||
|
Repairs
- third party
|
123
|
196
|
|||||
|
General
expenses - other
|
47
|
33
|
|||||
|
$
|
367
|
364
|
|||||
|
(9)
|
|
Income
Taxes
|
|
|
|
|
|
|
|
All
of the income and income tax was derived from activities of the Branch
in
Colombia.
|
Deferred
Remittance Tax
|
|
|
Deferred
remittance tax is calculated based upon commercial net income. Commercial
net income of Colombian branches of foreign companies derived from
exploration, development or production of hydrocarbons is levied
an
additional remittance tax of 7%.
|
|
|
|
|
|
|
|
The
law establishes that when this income is reinvested in the country
for
five years, the payment of the remittance tax will be deferred, after
which time the payment of this tax will be exonerated.
|
|
|
|
|
|
|
|
Under
the law, reinvestment occurs when the net income remains five years
within
the equity of the entity.
|
|
|
|
|
|
|
|
Tax
Reconciliation
|
|
|
|
|
|
|
|
Income
tax expense attributable to income from continuing operations was
$1,126
and $412 for the periods ended March 31, 2006 and 2005, and differed
from the amounts computed by applying the Colombian income tax rate
of 35%
(the statutory tax rate of the partnership’s Branch) to pretax income from
continuing operations as a result of the
following:
|
|
March
31, 2006
|
March
31, 2005
|
||||||||||||
|
Amount
|
%
|
Amount
|
%
|
||||||||||
|
Income
before taxes
|
$
|
2,815
|
100.00
|
1,045
|
100.00
|
||||||||
|
Computed
“Expected” tax expense
|
985
|
35.00
|
366
|
35.00
|
|||||||||
|
Tax
expense
|
1,126
|
40.00
|
412
|
39.43
|
|||||||||
|
Difference
|
$
|
141
|
5.00
|
46
|
4.43
|
||||||||
(Continued)
F-41
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
|
March
31, 2006
|
March
31, 2005
|
||||||||||||||||||
|
Basis
|
Amount
|
%
|
Basis
|
Amount
|
%
|
||||||||||||||
|
Explanation:
|
|||||||||||||||||||
|
Difference
in principles and translation
|
$
|
(312
|
)
|
(109
|
)
|
(3.88
|
)
|
(86
|
)
|
(30
|
)
|
(2.87
|
)
|
||||||
|
Surcharge
tax (10%)
|
92
|
3.28
|
34
|
3.25
|
|||||||||||||||
|
Remitance
tax expense (7%)
|
146
|
5.19
|
42
|
4.02
|
|||||||||||||||
|
Inflation
adjustment
|
(23
|
)
|
(8
|
)
|
(0.28
|
)
|
—
|
—
|
|||||||||||
|
No
deductible expenses
|
9
|
3
|
0.11
|
—
|
—
|
||||||||||||||
|
No
deductible taxes (Industry and commerce, stamp tax )
|
41
|
14
|
0.51
|
—
|
—
|
||||||||||||||
|
Assessments
to financial movements
|
6
|
2
|
0.07
|
—
|
—
|
||||||||||||||
|
Income
not taxable
|
4
|
1
|
0.00
|
—
|
|||||||||||||||
|
$
|
141
|
5.00
|
46
|
4.43
|
|||||||||||||||
|
|
|
The
deferred tax is originated in the following temporary differences
as of
March 31, 2006 and December 31,
2005:
|
|
March
31,
|
December
31,
|
||||||
|
2006
|
2005
|
||||||
|
Accrued
liabilities
|
$
|
201
|
201
|
||||
|
Property,
plant and equipment
|
(674
|
)
|
(676
|
)
|
|||
|
Net
deferred tax liability
|
$
|
(473
|
)
|
(475
|
)
|
||
|
|
|||||||
|
Roll
forward of deferred taxes:
|
|||||||
|
Beginning
balance
|
475
|
223
|
|||||
|
Increase
in year
|
—
|
352
|
|||||
|
Translation
|
(2
|
)
|
(100
|
)
|
|||
|
$
|
473
|
475
|
|||||
In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible and tax carryforwards utilizable.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the periods in which the deferred tax assets
are
deductible, management believes it is more likely than not that the branch
will
realize the benefits of these deductible differences, net of the existing
valuation allowances at March 31, 2006. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are
reduced.
(Continued)
F-42
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
|
|
|
Major
Changes Introduced by Law 863 (December 29,
2003)
|
|
|
1)
|
|
An
equity tax was created for fiscal years 2004, 2005 and 2006. Such
tax must
be liquidated applying at 0.3 % over the net equity at January
1
st
of
each year. This applies to equities of 3.000 million pesos in 2004,
3.183 million pesos in 2005 and 3.344 million pesos in
2006.
|
|
|
|
||
|
|
2)
|
|
The
financial transaction tax increased from 3 per thousand to 4 per
thousand
and it is applicable through the year 2007.
|
|
|
|
||
|
|
3)
|
|
Paid
taxes are not deductible except for 80% of industrial and commercial
and
Property Taxes.
|
|
|
|
||
|
|
4)
|
|
The
10% income tax surcharge (3.5%) is applicable for years 2003 through
2006.
This payment is not deductible for tax
purposes.
|
|
(10)
|
|
Settlement
Agreement with Aviva Overseas Inc.
|
|
|
|
|
|
|
|
Effective
August 19, 2005 Argosy Energy International, LP, Argosy Energy Corp.,
Crosby Capital, LLC, and Aviva Overseas, Inc. entered into a settlement
agreement which principal terms are as
follows:
|
|
|
1.
|
|
The
parties agreed that the agreement is a negotiated resolution of various
disputes between the parties.
|
|
|
|
||
|
|
2.
|
|
Aviva
Overseas, Inc. assigned and transferred all interests in the partnership,
corresponding to 29.6196%, to Argosy Energy International, LP as
a
redemption of such interests.
|
|
|
|
||
|
|
3.
|
|
Argosy
Energy International, LP is required to make the following payments
to
Aviva Overseas, Inc.: an initial cash payment of $300 as reimbursement
to
Aviva Overseas, Inc. for a portion of its cost incurred in connection
with
the disputes, a 90 day promissory note amounted to $3,050, a two year
promissory note in the amount of $1,125 (the “Note”, represented for 8
quarterly payments of $153 beginning in November 2005, including
interest at 8%), and an additional payment (described below) accrued
in
the amount of $329 as of the agreement date. As of March 31, 2006,
amounts outstanding under the agreement include $990 due on the Note
and
$310 accrued for the additional payment. The outstanding amount is
payable
as follows: $614 in 2006 and $686 in
2007.
|
|
|
|
The
additional payment is calculated as follows: after the earlier of
i) The
date Argosy Energy makes final payment of the “Note”, or (ii) after
the occurrence of an event of default, Argosy shall make a payment
in cash
in an amount equal to (i) $56,250 multiplied by the numeric amount
by
which the average daily closing price of the New York Mercantile
Exchange
nearby month contract for West Texas Intermediate crude oil over
the note
term exceeds $55 per barrel, reduced by (ii) all interest paid by
Argosy on the principal of the Note. The additional payment was recorded
at the date of the settlement agreement based on a calculation of
the
required payment at that date.
|
(Continued)
F-43
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
Crosby
Capital, LLC has guaranteed the payments required by Argosy Energy
International, LP.
The
new ownership percentages in Argosy Energy International L.P., after the
redemption of the partnership interest held by Aviva Overseas Inc. are as
follows:
|
|
|
Type
of
|
|||||
|
Partner
|
Interest
|
interest
|
|||||
|
Crosby
Capital L.L.C.
|
98.7491
|
%
|
Limited
Partner
|
||||
|
Argosy
Energy Corporation
|
0.7104
|
%
|
General
Partner
|
||||
|
Dale
E. Armstrong
|
0.4122
|
%
|
Limited
Partner
|
||||
|
Richard
S. McKnight
|
0.1283
|
%
|
Limited
Partner
|
||||
|
Total
|
100.0000
|
%
|
|||||
|
|
|
(11)Disagreement
Between Argosy Energy International and
Ecopetrol
|
|
|
|
|
|
|
|
As
of March 31, 2006 the contracting parties of Guayuyaco Association
Contract, Ecopetrol and Argosy Energy International, consulted with
their
legal advisors to clarify 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
Ecopetrol’s account only and serves as reimbursement of its 30% back in to
the Guayuyaco discovery. Argosy’s 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. While Argosy believes its
interpretation of the Guayuyaco Association Contract is correct,
the
resolution of this issue is still pending of agreement between the
parties
or determination through legal proceedings.
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
At
this time no amount has been accrued in the financial
statements.
|
|
|
|
|
|
(12)
|
|
Subsequent
Events
|
|
|
·
|
|
The
Company signed in May and June, 2006 two new exploration and production
contracts with the National Hydrocarbons Agency (ANH) called Primavera
and
Mecaya, to explore and produce oil,
respectively.
|
|
|
|
These
contracts have a maximum duration of 30 years with an exploration
period of 6 years and a production period of 24 years, which
starts upon the date in which Argosy receives the oil field commerciality
declaration from ANH.
|
|
|
|
|
|
|
|
The
contracts may be relinquished at the end of each phase after fulfillment
of the agreed obligations.
|
|
|
·
|
|
On
April 1, 2006 the partners of the partnership entered into a
redemption agreement pursuant to which all of Dale E. Armstrong interest
and Richard S. McKnight interest.
|
|
|
|
||
|
|
·
|
|
On
June 21, 2006 Gran Tierra Energy Inc. acquired all of the outstanding
partnership interest in the
Company.
|
(Continued)
F-44
Financial
Statements
December 31,
2005 and 2004
With
Independent Auditors’ Report Thereon
INDEPENDENT
AUDITORS’ REPORT
Partners
of
Argosy
Energy International, LP:
We
have
audited the accompanying balance sheets of Argosy Energy International, LP
as of
December 31, 2005 and 2004, and the related statements of income, partner’s
equity and cash flows for the years then ended. These financial statements
are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted
in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes 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 Company’s internal control over financial
reporting. Accordingly, we express no such opinion. 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, the financial statements referred to above present fairly, in all
material respects, the financial position of Argosy Energy International, LP
as
of December 31, 2005 and 2004, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/
KPMG
Ltda
Bogotá,
Colombia
July 28,
2006
(Continued)
F-45
Statements
of Income
Years
ended December 31, 2005 and 2004
(Expressed
in thousands of US dollars)
|
2005
|
2004
|
||||||
|
Oil
sales to Ecopetrol
|
$
|
11,891
|
6,393
|
||||
|
|
|||||||
|
Operating
cost (note 9)
|
2,452
|
2,060
|
|||||
|
Depreciation,
depletion and amortization
|
697
|
357
|
|||||
|
General
and administrative expenses
|
1,082
|
859
|
|||||
|
|
|||||||
|
|
4,231
|
3,276
|
|||||
|
|
|||||||
|
Operating
profit
|
7,660
|
3,117
|
|||||
|
|
|||||||
|
Other
income, net (note 10)
|
449
|
225
|
|||||
|
|
|||||||
|
Income
before income and remittance taxes
|
8,109
|
3,342
|
|||||
|
|
|||||||
|
Current
income tax (note 11)
|
2,187
|
1,026
|
|||||
|
Deferred
income tax
|
352
|
245
|
|||||
|
Deferred
remittance tax
|
353
|
146
|
|||||
|
Total
income and remittance taxes
|
2,892
|
1,417
|
|||||
|
Net
Income
|
$
|
5,217
|
1,925
|
||||
See
accompanying notes to financial statements.
(Continued)
F-46
Balance
Sheets
December 31,
2005 and 2004
(Expressed
in thousands of US dollars)
|
2005
|
|
2004
|
|||||
|
Assets
|
|
|
|||||
|
Current
assets:
|
|
|
|||||
|
Cash
and cash equivalents (note 3)
|
$
|
7,124
|
6,954
|
||||
|
Accounts
receivable, net (note 4)
|
951
|
584
|
|||||
|
Accounts
receivable reimbursement Ecopetrol
|
1,186
|
—
|
|||||
|
Inventories:
|
|||||||
|
Crude
oil
|
218
|
154
|
|||||
|
Materials
|
557
|
248
|
|||||
|
|
775
|
402
|
|||||
|
Total
current assets
|
10,036
|
7,940
|
|||||
|
|
|||||||
|
Other
long-term assets
|
16
|
10
|
|||||
|
Property,
plant and equipment (note 5):
|
|||||||
|
Unproved
properties
|
3,622
|
2,312
|
|||||
|
Proved
properties, net
|
5,401
|
3,211
|
|||||
|
|
9,023
|
5,523
|
|||||
|
Total
assets
|
$
|
19,075
|
13,473
|
||||
|
Liabilities
and Partners’ Equity
|
|||||||
|
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable
|
4,979
|
1,745
|
|||||
|
Tax
payable
|
1,326
|
826
|
|||||
|
Employee
benefits
|
103
|
88
|
|||||
|
Accrued
liabilities
|
522
|
375
|
|||||
|
Total
current liabilities
|
6,930
|
3,034
|
|||||
|
|
|||||||
|
Long-term
accounts payable (note 6)
|
686
|
—
|
|||||
|
Deferred
income tax
|
475
|
223
|
|||||
|
Deferred
remmittance tax
|
1,104
|
714
|
|||||
|
Pension
plan (note 7)
|
—
|
35
|
|||||
|
Total
liabilities
|
9,195
|
4,006
|
|||||
|
Partners’
equity (note 8)
|
9,880
|
9,467
|
|||||
|
Total
liabilities and Partners’ equity
|
$
|
19,075
|
13,473
|
||||
See
accompanying notes to financial statements.
(Continued)
F-47
Statements
of Cash Flows
Years
ended December 31, 2005 and 2004
(Expressed
in thousands of US dollars)
|
2005
|
|
2004
|
|||||
|
Cash
flows from operating activities:
|
|
|
|||||
|
Net
income
|
$
|
5,217
|
1,925
|
||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||||
|
Depreciation,
depletion and amortization
|
697
|
357
|
|||||
|
Bad
debt allowance
|
116
|
239
|
|||||
|
Deferred
income tax
|
352
|
245
|
|||||
|
Deferred
remittance tax
|
353
|
146
|
|||||
|
Pensions
|
24
|
59
|
|||||
|
Changes
in assets and liabilities:
|
|||||||
|
Accounts
receivable
|
(1,669
|
)
|
(191
|
)
|
|||
|
Inventories
|
(373
|
)
|
339
|
||||
|
Accounts
payable
|
2,620
|
1,245
|
|||||
|
Tax
payable
|
500
|
716
|
|||||
|
Employee
benefits
|
15
|
28
|
|||||
|
Accrued
liabilities
|
147
|
102
|
|||||
|
Deferred
income tax
|
(100
|
)
|
(4
|
)
|
|||
|
Deferred
remmittance tax
|
37
|
58
|
|||||
|
|
|||||||
|
Net
cash provided by operating activities
|
7,936
|
5,264
|
|||||
|
|
|||||||
|
Cash
flows from investing activities:
|
|||||||
|
Increase
in long term investments
|
(65
|
)
|
(70
|
)
|
|||
|
Additions
to property, plant and equipment
|
(4,197
|
)
|
(748
|
)
|
|||
|
|
|||||||
|
Net
cash used in investing activities
|
(4,262
|
)
|
(818
|
)
|
|||
|
|
|||||||
|
Cash
flows used in financial activities - Redemption of partnership interest
-
Aviva Overseas Inc.
|
(3,504
|
)
|
—
|
||||
|
|
|||||||
|
Net
increase in cash and cash equivalents
|
170
|
4,446
|
|||||
|
Cash
and cash equivalents at beginning of year
|
6,954
|
2,508
|
|||||
|
|
|||||||
|
Cash
and cash equivalents at end of year
|
$
|
7,124
|
6,954
|
||||
See
accompanying notes to financial statements.
(Continued)
F-48
Statements
of Partners’ Equity
Years
ended December 31, 2005 and 2004
(Expressed
in thousands of US dollars)
|
Limited
|
General
|
Total
|
||||||||
|
partners’
|
partners’
|
partners’
|
||||||||
|
capital
|
capital
|
equity
|
||||||||
|
Balance
as of December 31, 2003
|
$
|
7,504
|
38
|
7,542
|
||||||
|
|
||||||||||
|
Net
income
|
1,915
|
10
|
1,925
|
|||||||
|
Balance
as of December 31, 2004
|
9,419
|
48
|
9,467
|
|||||||
|
|
||||||||||
|
Net
income
|
5,180
|
37
|
5,217
|
|||||||
|
|
||||||||||
|
Redemption
of partnership interest -
|
||||||||||
|
Aviva
Overseas Inc. (note 6)
|
(4,789
|
)
|
(15
|
)
|
(4,804
|
)
|
||||
|
Balance
as of December 31, 2005
|
$
|
9,810
|
70
|
9,880
|
||||||
See
accompanying notes to financial statements.
(Continued)
F-49
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
December 31,
2005 and 2004
(Expressed
in thousands of US dollars)
| (1) |
Business
Activities
|
Argosy
Energy International, LP is a Utah (USA) Limited Partnership, which
established a Colombian Branch in 1983.
Argosy
Energy International, LP is engaged in the business of exploring for, developing
and producing oil and gas. The principal properties and operations are located
in Colombia, which are carried out through its Colombian Branch in the Putumayo,
Cauca, Tolima and Cundinamarca Provinces. The oil production is sold to Empresa
Colombiana de Petróleos, the Colombian National Oil Company,
(“Ecopetrol”).
There
are
risks involved in conducting oil and gas activities in remote, rugged and
primitive regions of Colombia. The guerrillas have operated within Colombia
for
many years and expose the Company’s operations to potentially detrimental
activities. The guerrillas are present in the Putumayo and Río Magdalena areas
where the Company’s properties are located. Since 1998, the Company has only
experienced minor attacks on pipelines and equipment.
Operations
As
of
December 31, 2005, Argosy was participating in the following Association
Contracts signed with Ecopetrol and Exploration and Exploitation Contracts
signed with the Hydrocarbons National Agency - ANH.
|
Contract
|
|
Participation
|
|
Operator
|
|
Phase
|
||||
|
Santana
|
35
|
%
|
ARGOSY
|
Exploitation
|
||||||
|
Guayuyaco
|
70
|
%
|
ARGOSY
|
Exploitation
|
||||||
|
Aporte
Putumayo
|
100
|
%
|
ARGOSY
|
Abandonment
|
||||||
|
Río
Magdalena
|
70
|
%
|
ARGOSY
|
Exploration
|
||||||
|
Talora
|
20
|
%
|
ARGOSY
|
Exploration
|
||||||
|
Chaza
|
50
|
%
|
ARGOSY
|
Exploration
|
||||||
The
first
four contracts have been signed with ECOPETROL and the last two with
ANH.
An
association contracts are those where the Government participate as partner
of
the field through the national oil company — ECOPETROL.
Exploration
and production contracts (E&P) are those signed with the ANH — “Agencia
Nacional de Hidrocarburos” (National Agency for Hydrocarbons) in which the
Government only receive royalties and taxes for the rights of exploration and
production but there is not a participation from the national oil company -
ECOPETROL or any other government entity.
(Continued)
F-50
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
The
main
terms of the above-mentioned contracts are as follows:
Santana
Association Contract
On
May 27, 1987 (effective date July 27, 1987), Argosy Energy
International, LP signed this association contract to explore for and produce
oil, in the area called Santana. The contract is in its 19th year and the
Company reduced the area to a 5 kilometer reserve area around each field. The
remaining contract area is approximately 1,100 acres.
Under
the
terms of the contract with Ecopetrol, a minimum of 25% of all revenues from
oil
sold to Ecopetrol is paid in Colombian pesos, which may only be utilized in
Colombia. However, this proportion can be modified through parties
agreement.
Aporte
Putumayo - Association Contract
The
Aporte Putumayo area has been returned to the Government. Such devolution is
subject to the approval of the environmental restoration of the region by the
Ministry of Environment and the treatment of the abandonment of the wells agreed
with Ecopetrol and the Ministry of Mines.
Río
Magdalena Association Contract
On
December 10, 2001 (effective date February 8, 2002), Argosy Energy
International, LP and Ecopetrol signed this Association Contract, to explore
and
produce oil, in the area called Río Magdalena of approximately 145,000 acres,
located in the Middle Magdalena region of Colombia in the provinces of
Cundinamarca and Tolima.
The
contract has a maximum duration of 28 years distributed as follows: an
exploration period of 6 years and a production period of 22 years starting
on the date of termination of the exploration period. The exploratory well,
Popa-1 was drilled during June and July and is on the completion
stage.
Upon
finalization of each phase, Argosy has the option to cancel the contract having
previously completed the obligations agreed for each phase.
BT
Letter Agreement
On
February 27, 2001 Argosy Energy International, LP signed a letter agreement
with BT Operating Company for the acquisition and management of the Río
Magdalena Exploration Area. BT and Argosy mutually agreed to pay their 50%
share
of costs under the terms of the Ecopetrol Association contract and provide
certain services toward management and compliance of the obligations. As of
December 31, 2005 BT had not met their obligations under this agreement and
outstanding accounts receivable of $355 related to their share of costs related
to the Río Magdalena Association Contract were provisioned as bad
debts.
(Continued)
F-51
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
Guayuyaco
Association Contract
On
August 2, 2002 (effective date September 30, 2002) Argosy Energy
International, LP signed this association contract with Ecopetrol, to explore
and produce oil, in the area named Guayuyaco. This Association contract gives
Argosy the right to explore potential reserves in prospects adjacent to the
existing Santana oil field. The block is located in the Putumayo and Cauca
provinces and covers approximately 52.000 acres originally held under the
Santana Risk Sharing Agreement.
The
Guayuyaco contract has a maximum duration of 27.5 years with an exploration
period of 5.5 years and a production period of 22 years, which starts
upon termination of the exploration period.
Argosy
has the obligation of carry out the exploration work in two phases, which were
completed. In the first phase, the Branch drilled the Inchiyaco -1 exploration
well which was successful. During the second exploration phase, two wells were
drilled, Guayuyaco-1 and Guayuyaco-2, which were successful. Therefore, on
December 28, 2005, Ecopetrol accepted the Commerciality of the
field.
Solana
Petroleum Exploration Commercial Agreement
Argosy
and Solana Petroleum Exploration entered into a commercial agreement in 2003
whereby, Solana through fulfillment of certain obligations could earn a
participating interest in the Inchiyaco Prospect and have an option to enter
the
next exploration prospect under the Guayuyaco Association Contract. Inchiyaco-1
was drilled and completed as a producing well in 2003 resulting in Solana’s
sharing 26.21% interest in Argosy’s net share of the prospect.
The
commercial agreement was revised in 2004, giving Solana the right to share
a 50%
interest in Argosy’s net share of the Guayuyaco association contract by paying
66.7% of two exploratory wells (Guayuyaco-1 and Juanambu-1) and 50% for a new
seismic program and additional projects.
Talora
Exploration and Exploitation Contract
On
September 16, 2004, (effective date), Argosy and the National Hydrocarbons
Agency (ANH) signed the Talora exploration and exploitation contract to
explore and produce oil, in an area of approximately 108,000 acres located
in
Tolima and Cundinamarca Provinces.
The
contract has a maximum duration of 30 years with an exploration period of
6 years and a production period of 24 years, which starts upon the
date in which Argosy receives the oil field commerciality declaration from
ANH.
(Continued)
F-52
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
Contractual
Commitments:
|
|
|
Starting
|
|
|
|
Phase
|
|
date
|
|
Obligations
|
|
3
|
|
December 16,
2006
|
|
One
exploratory well.
|
|
4
|
|
December 16,
2007
|
|
One
exploratory well.
|
|
5
|
|
December 16,
2008
|
|
One
exploratory well.
|
|
6
|
|
December 16,
2009
|
|
One
exploratory well.
|
The
contract may be relinquished at the end of each phase after fulfillment of
the
agreed obligations.
Chaza
Exploration and Exploitation Contract
On
June 27, 2005 (effective date) Argosy and the National Hydrocarbons Agency
(ANH) signed the Chaza exploration and exploitation contract to explore and
produce oil, in an area of approximately 80,000 acres located in Putumayo and
Cauca Provinces.
The
contract has a maximum duration of 30 years with an exploration period of
6 years and a production period of 24 years, which starts upon the
date in which Argosy receives the oil field commerciality declaration from
ANH.
The
ANH
Resolution 0217, dated September 13, 2005, approved the 2005 assignment of
50% interest of the contract to Solana Petroleum Exploration.
Contractual
Commitments:
|
|
|
Starting
|
|
|
|
Phase
|
|
date
|
|
Obligations
|
|
2
|
|
June 27,
2006
|
|
One
exploratory well.
|
|
3
|
|
June 27,
2007
|
|
One
exploratory well.
|
|
4
|
|
December 16,
2008
|
|
One
exploratory well.
|
|
5
|
|
December 16,
2009
|
|
One
exploratory well.
|
|
6
|
|
December 16,
2010
|
|
One
exploratory well.
|
The
contract may be relinquished at the end of each phase after fulfillment of
the
agreed obligations.
(Continued)
F-53
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
| (2) |
Summary
of Significant Accounting Policies and
Practices
|
(a)
Foreign
Currency Translation
The
transactions and accounts of the Company’s operations denominated in currencies
other than US dollars are re-measured into United States dollars in accordance
with Statement of Financial Accounting Standards FAS 52. The United States
dollar is used as the functional currency. Exchange adjustments resulting from
foreign currency balances are recognized in expense or income in the current
period.
(b)
Cash
Equivalents
Cash
equivalents are highly liquid investments purchased with an original maturity
of
three months or less.
(c)
Inventories
Inventories
consist of crude oil and materials and supplies and are stated at the lower
of
cost or market.
(d)
Property,
Plant and Equipment
The
Company follows the full cost method to account for exploration and development
of oil and gas reserves whereby all productive and nonproductive costs are
capitalized. The only cost center is Colombia. All capitalized costs plus the
undiscounted future development costs of proved reserves are depleted using
the
unit of production method based on total proved reserves applicable to the
country.
Proved
oil and gas reserves are the estimated quantities of crude oil that geological
and engineering data demonstrate with reasonable certainty can be recovered
in
future years from known reservoirs under existing economic and operating
conditions considering future production and development costs.
Costs
related to initial exploration activities with no proved reserves are initially
capitalized and periodically evaluated for impairment. The Company capitalizes
internal costs directly identified with exploration and development activities.
The net capitalized costs of oil properties are subject to a ceiling test,
which
limits such pooled costs to the aggregate of the present value of future net
revenues attributable to proved oil and gas reserves discounted at 10% plus
the
lower of cost or market value of unproved properties. If capitalized costs
exceed this limit, the excess is charged to expense and reflected as additional
accumulated depreciation, depletion and amortization.
F-54
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
While
the
quantities of proved reserves require substantial judgment, the associated
prices of oil reserves that are included in the discounted present value of
our
reserves are objectively determined. The ceiling test calculation requires
use
of prices and costs in effect as of the last day of the accounting period,
which
are generally held constant for the life of the properties. As a result, the
present value is not necessarily an indication of the fair value of the
reserves. Oil and gas prices have historically been volatile and the prevailing
prices at any given time may not reflect our Partnership’s or the industry’s
forecast of future prices.
Gain
or
loss on the sale or other disposition of oil and gas properties is not
recognized, unless the gain or loss would significantly alter the relationship
between capitalized costs and proved reserves of oil and gas attributable to
a
country.
Support
equipment and facilities are depreciated using the unit of production method
based on total reserves of the field related to the support equipment and
facilities.
(e)
Environmental
Liabilities and Expenditures
Argosy
accrues for losses associated with environmental remediation obligations when
such losses are probable and can be reasonably estimated. These accruals are
adjusted as further information develops or circumstances change. Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value.
(f)
Asset
Retirement Obligations
Liability
for asset retirement obligation is considered to be negligible at this time,
based on projected production profiles, expiry dates and terms of the
Association Contracts for current operations. However, the Company has accrued
the costs related to environmental remediation and abandonment of the wells
belonging to Aporte Putumayo Contract.
(g)
Concentration
of Credit Risks
All
of
the company’s production is sold to Ecopetrol in which the sale price is agreed
between both parts, according to local regulations in Colombia.
(h)
Income
Taxes
Deferred
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax basis and operating
loss.
F-55
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that
includes the enactment date.
(i)
Financial
Instruments Fair Value
The
carrying amounts of cash and cash equivalents approximate fair value because
of
the short maturity of those instruments. The carrying value of other
on-balance-sheet financial instruments, approximates fair value, and the cost,
if any, to terminate off-balance-sheet financial instruments is not
significant.
(j)
Employee
Benefits
The
Company recognizes the obligations with its employees in accordance with the
current Colombian labor law. These obligations include the severance indemnity
and the legal service bonus each one equivalent to a monthly salary per year
and
interest on severance at the rate of 12% on the balance of severance indemnities
paid. The relevant liability for these two concepts is shown under the “Employee
benefits” account as current liabilities at the closing of the
period.
(k)
Defined
Benefit Pension Plan
The
Company has a defined benefit pension plan covering one employee. The benefits
are based on years of service, age and the employee’s compensation. Currently,
the cost of this program is not being funded. The actuarial study is performed
at the end of each year in accordance with the guidelines established by FAS
87.
(l)
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, disclosure of contingent
assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
(m)
Revenue
Recognition
The
Company recognizes revenue when the crude oil is delivered to
Ecopetrol.
Ecopetrol
pays the oil sales invoicing 25% in local currency and the 75% in US Dollars,
according to the terms of the Oil Sales Contract executed between Ecopetrol
and
Argosy, through which the oil sale price is fixed, with expiration dated
November 1, 2006.
F-56
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
(n)
Management
Fee
The
Company accounts for the management fees received from its partners as operator
of the contracts as a less value of the operating costs.
(o)
Comprehensive
Income
For
each
period presented in the accompanying statements of income, comprehensive income
and net income are the same amount.
| (3) |
Cash
and Cash Equivalents
|
The
following is a summary of cash and cash equivalents as of
December 31:
|
2005
|
|
2004
|
|||||
|
Held
in United States dollars
|
$
|
6,329
|
6,454
|
||||
|
Held
in Colombian pesos
|
394
|
185
|
|||||
|
Short-term
investments
|
401
|
315
|
|||||
|
$
|
7,124
|
6,954
|
|||||
| (4) |
Accounts
Receivable
|
The
following is a summary of accounts receivable as of
December 31:
|
2005
|
2004
|
||||||
|
Trade
|
$
|
675
|
81
|
||||
|
B.T.
Río Magdalena Agreement
|
355
|
239
|
|||||
|
Vendor
advances
|
172
|
60
|
|||||
|
Solana
joint account
|
—
|
324
|
|||||
|
Other
|
104
|
119
|
|||||
|
|
1,306
|
823
|
|||||
|
Less
allowance for bad debts
|
(355
|
)
|
(239
|
)
|
|||
|
$
|
951
|
584
|
|||||
| (5) |
Property,
Plant and Equipment
|
The
following is a summary of property, plant and equipment as of
December 31:
|
2005
|
2004
|
||||||
|
Oil
properties:
|
|
|
|||||
|
Unproved
|
$
|
3,622
|
2,312
|
||||
|
Proved
|
59,096
|
56,218
|
|||||
|
|
62,718
|
58,530
|
|||||
|
Less
accumulated depreciation, depletion, and amortization
|
53,695
|
53,007
|
|||||
|
$
|
9,023
|
5,523
|
|||||
F-57
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
Capitalized
Cost Unproved
Excluded
From the Capitalized Cost Being Amortized
|
|
|
|
|
|
|
Exploration
Cost
|
|
Cost
Incurred
|
|
Month
Anticipated to be included
|
||||||||
|
AFE
|
|
Contract
|
|
Detail
|
|
Dec-04
|
|
Dec-05
|
|
Mar-06
|
|
2004
|
|
2005
|
|
2006
|
|
in
Amortization
|
|
MARY
WELLWEST
PROSPECT
|
|
Santana
|
|
Geological
&
Geophysical
Data
|
|
287
|
|
287
|
|
287
|
|
287
|
|
|
|
|
|
Dec-06
|
|
MARY
WEST WELL
TESTING
|
|
Santana
|
|
Geological
&
Geophysical
Data
|
|
93
|
|
93
|
|
93
|
|
93
|
|
|
|
|
|
Dec-06
|
|
Expl.
100% NEW PROJECTS
|
|
New
Projects
|
|
Geological
&
Geophysical
Data
|
|
253
|
|
363
|
|
375
|
|
253
|
|
110
|
|
12
|
|
Dec-06
|
|
Expl.
100% SANTANA
|
|
Guayuyaco
|
|
Geological
&
Geophysical
Data
|
|
1,044
|
|
1,044
|
|
1,044
|
|
1,044
|
|
|
|
|
|
Dec-06
|
|
Expl.
100% RIO MAGDALENA
|
|
Rio
Magdalena
|
|
Seismic
Program
|
|
634
|
|
808
|
|
889
|
|
634
|
|
174
|
|
81
|
|
Mar-07
|
|
TALORA
PROJECT
|
|
Talora
|
|
Seismic
Program
|
|
1
|
|
89
|
|
134
|
|
1
|
|
88
|
|
44
|
|
Sep-07
|
|
SEISMIC
GUAYUYACO
|
|
Guayuyaco
|
|
Seismic
Program
|
|
0
|
|
431
|
|
431
|
|
|
|
431
|
|
|
|
Dec-06
|
|
SEISMIC
CHAZA
|
|
Chaza
|
|
Seismic
Program
|
|
0
|
|
505
|
|
538
|
|
|
|
505
|
|
33
|
|
Sep-07
|
|
POPA-1
WELL
EXPLORATORY
|
|
Rio
Magdalena
|
|
Road
and Location Well
|
|
0
|
|
0
|
|
32
|
|
|
|
|
|
32
|
|
Mar-07
|
|
JUANAMBU-1
WELL
EXPLORATORY
|
|
Guayuyaco
|
|
Road
and Location Well
|
|
0
|
|
2
|
|
8
|
|
|
|
2
|
|
6
|
|
Jun-07
|
|
|
|
|
|
|
|
|
|
0
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Unproved
Exploration
Costs
|
|
|
|
|
|
2,312
|
|
3,622
|
|
3,831
|
|
2,312
|
|
1,310
|
|
208
|
|
|
All
capital excluded from capitalized cost being amortized relates to exploration
cost. No acquisition costs, development costs or capitalized interest costs
are
identified.
| (6) |
Settlement
Agreement with Aviva Overseas
Inc
|
Effective
August 19, 2005 Argosy Energy International, LP, Argosy Energy Corp.,
Crosby Capital, LLC, and Aviva Overseas, Inc. entered into a settlement
agreement which principal terms are as follows:
|
1.
|
|
The
parties agreed that the agreement is a negotiated resolution of various
disputes between the parties.
|
|
|
|
|
|
2.
|
|
Aviva
Overseas, Inc. assigned and transferred all interests in the partnership,
corresponding to 29.6196%, to Argosy Energy International, LP as
a
redemption of such interests.
|
|
|
|
|
|
3.
|
|
Argosy
Energy International, LP is required to make the following payments
to
Aviva Overseas, Inc.: an initial cash payment of $300 as reimbursement
to
Aviva Overseas, Inc. for a portion of its cost incurred in connection
with
the disputes, a 90 day promissory note amounted to $3,050, a two year
promissory note in the amount of $1,125 (the “Note”, represented for 8
quarterly payments of $153 beginning in November 2005, including
interest at 8%), and an additional payment (described below) accrued
in
the amount of $329 as of the agreement date. As of December 31, 2005,
amounts outstanding under the agreement include $990 due on the Note
and
$310 accrued for the additional payment. The outstanding amount is
payable
as follows: $614 in 2006 and $686 in
2007.
|
F-58
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
The
additional payment is calculated as follows: after the earlier of i) The date
Argosy Energy makes final payment of the “Note”, or (ii) after the
occurrence of an event of default, Argosy shall make a payment in cash in an
amount equal to (i) $56,250 multiplied by the numeric amount by which the
average daily closing price of the New York Mercantile Exchange nearby month
contract for West Texas Intermediate crude oil over the note term exceeds $55
per barrel, reduced by (ii) all interest paid by Argosy on the principal of
the Note. The additional payment was recorded at the date of the settlement
agreement based on a calculation of the required payment at that
date.
Crosby
Capital, LLC has guaranteed the payments required by Argosy Energy
International, LP.
The
new
ownership percentages in Argosy Energy International L.P., after the redemption
of the partnership interest held by Aviva Overseas Inc. is as
follows:
|
Type
of
|
|||||||
|
Partner
|
Interest
|
interest
|
|||||
|
Crosby
Capital L.L.C.
|
98.7491
|
%
|
Limited
Partner
|
||||
|
Argosy
Energy Corporation
|
0.7104
|
%
|
General
Partner
|
||||
|
Dale
E. Armstrong
|
0.4122
|
%
|
Limited
Partner
|
||||
|
Richard
S. McKnight
|
0.1283
|
%
|
Limited
Partner
|
||||
|
Total
|
100.0000
|
%
|
|||||
| (7) |
Pension
Plan
|
Costs
of
the retirement plan are accrued based on various assumptions and discount rates,
as described below. The actuarial assumptions used could change in the near
term
as a result of changes in expected future trends and other factors, which
depending on the nature of the changes, could cause increases or decreases
in
the liabilities accrued.
The
components of pension cost as of December 31 are:
|
2005
|
|
2004
|
|||||
|
Interest
cost
|
$
|
34
|
31
|
||||
|
Expected
return of assets
|
(48
|
)
|
(30
|
)
|
|||
|
Amortization
of unrecognized net transition obligation (asset)
|
3
|
3
|
|||||
|
Net
periodic pension cost
|
$
|
(11
|
)
|
4
|
|||
|
|
|||||||
|
Changes
in plan assets:
|
|||||||
|
Fund
assets at beginning of year
|
300
|
232
|
|||||
|
Interest
earned
|
61
|
68
|
|||||
|
Fund
assets at end of year
|
$
|
361
|
300
|
||||
F-59
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
|
2005
|
|
2004
|
|
||||
|
Funded
status:
|
|
|
|||||
|
Projected
benefit obligation
|
359
|
335
|
|||||
|
Assets
at fair value
|
361
|
300
|
|||||
|
Funded
status
|
2
|
(35
|
)
|
||||
|
Unrecognized
net transaction obligation remaining
|
31
|
32
|
|||||
|
Unrecognized
prior service cost
|
—
|
—
|
|||||
|
Adjustment
additional minimum liability
|
(2
|
)
|
(5
|
)
|
|||
|
Unrecognized
net loss or (gain)
|
(29
|
)
|
(27
|
)
|
|||
|
Prepaid
(unfunded accrued) pension cost
|
$
|
2
|
(35
|
)
|
|||
The
Company’s fund asset to cover pension benefits is represented in a mutual fund
amounting to $361 and $300, in 2005 and 2004, respectively.
|
2005
|
2004
|
||||||
|
Change
in benefit obligation
|
|
|
|||||
|
Benefit
obligation at beginning of year
|
335
|
276
|
|||||
|
Interest
Cost
|
34
|
31
|
|||||
|
Benefits
Paid
|
(24
|
)
|
(22
|
)
|
|||
|
Foreign
Currency Exchange
|
14
|
50
|
|||||
|
Total
Activity
|
24
|
59
|
|||||
|
Benefit
obligation at end of year
|
359
|
335
|
|||||
The
weighted-average assumptions used to determine benefit obligations at
December 31 are as follows:
|
2005
|
2004
|
||||||
|
%
|
%
|
||||||
|
Discount
rate
|
9.3
|
10.5
|
|||||
|
Rate
of compensation increase
|
4.7
|
6.0
|
|||||
Estimated
future benefit payments are expected to be paid as follows:
|
Year
|
Amount
|
|||
|
2006
|
25
|
|||
|
2007
|
23
|
|||
|
2008
|
22
|
|||
|
2009
|
20
|
|||
|
2010
|
19
|
|||
|
2011-
2016
|
250
|
|||
No
expected contributions will be made to the plan during the year
2006.
F-60
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
| (8) |
Equity
|
Stockholders’
Capital
The
following is a detail of the stockholders’ participation in the
capital:
|
2005
|
2004
|
||||||
|
Stockholders
|
%
|
%
|
|||||
|
Crosby
Capital L.L.C.
|
98.75
|
69.50
|
|||||
|
Argosy
Energy Corp. .**
|
0.71
|
0.50
|
|||||
|
Aviva
Overseas, Inc
|
—
|
29.62
|
|||||
|
Dale
E. Armstrong
|
0.41
|
0.29
|
|||||
|
Richard
S. McKnight
|
0.13
|
0.09
|
|||||
|
|
100.00
|
100.00
|
|||||
**
Argosy
Energy Corp. is a general partner interest. All others are limited partnership
interests. Net income is allocated according to the participation of each
stockholder in the Company’s capital.
Foreign
Exchange Restrictions
In
accordance with current legislation in Colombia, the branches of foreign
companies in the oil industry are not under the obligation to refund to the
Colombian exchange market the proceeds from their foreign currency sales either
inside or outside the country. The net proceeds from oil exports may be used
by
the branches of oil companies to reimburse abroad the capital and profits from
the operation in Colombia. As a result of this foreign exchange liberation,
the
branch cannot purchase foreign currency in the Colombian exchange market to
remit profits, repatriate capital, repay external debt or pay foreign currency
expenses.
| (9) |
Operating
Cost
|
The
following is a summary of operating cost incurred as of
December 31:
|
2005
|
|
2004
|
|||||
|
Direct
labor
|
$
|
383
|
316
|
||||
|
Maintenance,
materials and lubricants
|
417
|
417
|
|||||
|
Repairs
- third party
|
700
|
752
|
|||||
|
General
expenses - others
|
952
|
575
|
|||||
|
$
|
2,452
|
2,060
|
|||||
F-61
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
| (10) |
Other
Income and Expenses,
net
|
The
following is a summary of other income and expenses, net as of
December 31:
|
2005
|
|
2004
|
|||||
|
Oil
transportation
|
$
|
18
|
146
|
||||
|
Financial
income
|
171
|
65
|
|||||
|
Insurance
reimbursement
|
126
|
—
|
|||||
|
Other
income
|
217
|
162
|
|||||
|
Foreign
translation gain (loss)
|
33
|
(148
|
)
|
||||
|
Allowance
for bad debts
|
(116
|
)
|
—
|
||||
|
$
|
449
|
225
|
|||||
| (11) |
Income
Taxes
|
All
of
the income and income tax was derived from activities of the branch in
Colombia.
Deferred
Remittance Tax
Deferred
remittance tax is calculated based upon commercial net income. Commercial net
income of Colombian branches of foreign companies derived from exploration,
development or production of hydrocarbons is levied an additional remittance
tax
of 7%.
The
law
establishes that when this income is reinvested in the country for five years,
the payment of the remittance tax will be deferred, after which time the payment
of this tax will be exonerated.
Under
the
law, reinvestment occurs when the net income remains five years within the
equity of the entity.
Tax
reconciliation
Income
tax expense attributable to income from continuing operations was $2,892 and
$1,417 for the years ended December 31, 2005 and 2004, respectively, and
differed from the amounts computed by applying the Colombian income tax rate
of
35% (the statutory tax rate of the partnership’s Branch) to pretax income from
continuing operations as a result of the following:
|
2005
Basis
Amount %
|
2004
Basis
Amount %
|
||||||||||||
|
Income
before taxes
|
$
|
8,109
|
100.00
|
3,342
|
100.00
|
||||||||
|
Computed
“Expected” tax expense
|
2,838
|
35.00
|
1,170
|
35.00
|
|||||||||
|
Tax
expense
|
2,892
|
35.66
|
1,417
|
42.40
|
|||||||||
|
Difference
|
$
|
54
|
0.66
|
247
|
7.40
|
||||||||
F-62
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
|
2005
|
2004
|
||||||||||||||||||
|
Basis
|
Amount
|
%
|
Basis
|
Amount
|
%
|
||||||||||||||
|
Explanation:
|
|
|
|
|
|
|
|||||||||||||
|
Difference
in principles
|
$
|
(593
|
)
|
(207
|
)
|
(2.56
|
)
|
(49
|
)
|
(17
|
)
|
(0.51
|
)
|
||||||
|
Surcharge
tax (10%)
|
199
|
2.45
|
93
|
2.79
|
|||||||||||||||
|
Remittance
tax expense (7%)
|
353
|
4.35
|
146
|
4.37
|
|||||||||||||||
|
Inflation
adjustment
|
(53
|
)
|
(19
|
)
|
(0.23
|
)
|
(21
|
)
|
(7
|
)
|
(0.22
|
)
|
|||||||
|
No
deductible expense
|
32
|
11
|
0.14
|
16
|
6
|
0.17
|
|||||||||||||
|
No
deductible tax (Stamp tax)
|
130
|
46
|
0.56
|
57
|
20
|
0.60
|
|||||||||||||
|
Assessments
to financial movements
|
45
|
16
|
0.19
|
13
|
4
|
0.13
|
|||||||||||||
|
Equity
tax
|
25
|
9
|
0.11
|
31
|
11
|
0.33
|
|||||||||||||
|
Deduction
fixed real productive assets
|
(1,014
|
)
|
(355
|
)
|
(4.38
|
)
|
|||||||||||||
|
Income
not taxable
|
4
|
1
|
0.03
|
(23
|
)
|
(9
|
)
|
(0.26
|
)
|
||||||||||
|
$
|
54
|
0.66
|
247
|
7.40
|
|||||||||||||||
The
deferred tax is the following:
|
2005
|
2004
|
||||||
|
Accrued
liabilities
|
$
|
201
|
183
|
||||
|
Property,
plant and equipment
|
(676
|
)
|
(406
|
)
|
|||
|
Net
deferred tax liability
|
$
|
(475
|
)
|
(223
|
)
|
||
|
|
|||||||
|
Roll
forward of deferred taxes:
|
|||||||
|
Net
deferred tax to December 31:
|
|||||||
|
Beginning
balance
|
223
|
(18
|
)
|
||||
|
Increase
in year
|
352
|
245
|
|||||
|
Translation
|
(100
|
)
|
(4
|
)
|
|||
|
$
|
475
|
223
|
|||||
In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible and tax carryforwards utilizable.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the periods in which the deferred tax assets
are
deductible, management believes it is more likely than not that the branch
will
realize the benefits of these deductible differences, net of the existing
valuation allowances at December 31, 2005 and 2004. The amount of the
deferred tax asset considered realizable, however, could be reduced in the
near
term if estimates of future taxable income during the carryforward period are
reduced.
F-63
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
Major
Changes Introduced by Law 863 (December 29, 2003)
|
|
1)
|
|
An
equity tax was created for fiscal years 2004, 2005 and 2006. Such
tax must
be liquidated applying at 0.3 % over the net equity at January
1
st
of
each year. This applies to equities of 3.000 millions pesos in 2004,
3.183 millions pesos in 2005 and 3.344 millions pesos in
2006.
|
|
|
|
||
|
|
2)
|
|
The
financial transaction tax increased from 3 per thousand to 4 per
thousand
and it is applicable through the year 2007.
|
|
|
|
||
|
|
3)
|
|
Paid
taxes are not deductible except for 80% of industrial and commercial
and
property Taxes.
|
|
|
|
||
|
|
4)
|
|
The
10% income tax surcharge (3.5%) is applicable for years 2003 through
2006.
This payment is not deductible for tax
purposes.
|
| (12) |
Disagreement
Between Argosy Energy International and
Ecopetrol
|
As
of
December 31, 2005 the contracting parties of the Guayuyaco Association
Contract, Ecopetrol and Argosy, consulted with their legal advisors to clarify
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 Clause
3.5 of Attachment-B to the Guayuyaco Association Contract. Ecopetrol interprets
the contract to provide that the extended test production up to a value equal
to
30% of the direct exploration costs of the wells is for Ecopetrol’s account only
and serves as reimbursement of its 30% back-in to the Guayuyaco discovery.
Argosy’s contention is that this amount is merely the recovery of 30% of the
direct exploration costs of the wells and not exclusively for the benefit of
Ecopetrol. While Argosy believes its interpretation of the Guayuyaco Association
Contract is correct, the resolution of this issue is pending agreement of 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 the disputed production is US$2,361,188, which possible
loss
is shared 50% (US$1,180,594) with the Argosy’s Guayuyaco partner, Solana
Petroleum Exploration (Colombia) S.A.
F-64
ARGOSY ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
| (13) |
Subsequent
Events
|
|
|
·
|
|
The
Company signed in May and June, 2006 two new exploration and production
contracts with the National Hydrocarbons Agency (ANH) called Primavera
and
Mecaya, to explore and produce oil,
respectively.
|
These
contracts have a maximum duration of 30 years with an exploration period of
6 years and a production period of 24 years, which starts upon the
date in which Argosy receives the oil field commerciality declaration from
ANH.
The
contracts may be relinquished at the end of each phase after fulfillment of
the
agreed obligations.
|
|
·
|
|
On
April 1, 2006 the partners of the partnership entered into a
redemption agreement pursuant to which all of Dale E. Armstrong interest
and Richard S. McKnight interest.
|
|
|
|
||
|
|
·
|
|
On
June 21, 2006 Gran Tierra Energy Inc. acquired all of the outstanding
partnership interest in the
Company.
|
F-65
Supplemental
Oil and Gas Information (Unaudited)
The
following tables set forth Argosy’s net interests in quantities of proved
developed and undeveloped reserves of crude oil. Crude oil reserves represent
the Argosy-owned oil reserves projected for properties located in Colombia.
The
reserves are stated after applicable royalties. These estimates include reserves
in which Argosy holds an economic interest under production-sharing contracts.
The studies to estimated proved oil reserves for the years 2003, 2004 and 2005
were prepared by Huddleston & Co., Inc.
In
accordance with SFAS No. 69 and Securities and Exchange Commission (“SEC”)
rules and regulations, the following information is presented with regard oil
proved reserves, all of which are located in Colombia. These rules require
inclusion as a supplement to the basic financial statements a standardized
measure of discounted future net cash flows relating to proved oil and gas
reserves. The standardized measure, in management’s opinion, should be examined
with caution. The bases for these disclosures are independent petroleum
engineer’s reserve studies which contains imprecise estimates of quantities and
rates of production of reserves. Revision of prior year estimates can have
a
significant impact on the results. Also, exploration and production improvement
costs in one year may significantly change previous estimates of proved reserves
and their valuation. Values of unproved properties and anticipated future price,
and cost increases or decreases are not considered. Therefore, the standardized
measure is not necessarily a “best estimate” of the fair value of oil and gas
properties or of future net cash flows.
I-Oil
Reserves Information
(In
barrels)
Proved
Developed and Undeveloped Reserves
|
Balance
at December 31, 2003
|
1,845,654
|
|||
|
Revision
of previous estimates
|
168,766
|
|||
|
Improved
recovery
|
—
|
|||
|
Purchases
of proved reserves
|
—
|
|||
|
Extension
and discoveries
|
—
|
|||
|
Production
|
(197,027
|
)
|
||
|
Sales
|
—
|
|||
|
Balance
at December 31, 2004
|
1,817,393
|
|||
|
Revision
of previous estimates
|
(18,936
|
)
|
||
|
Improved
recovery
|
—
|
|||
|
Purchases
of proved reserves
|
—
|
|||
|
Extension
and discoveries
|
822,007
|
|||
|
Production
|
(283,795
|
)
|
||
|
Sales
|
—
|
|||
|
Balance
at December 31, 2005
|
2,336,669
|
|||
|
|
||||
|
Proved
developed reserves
|
||||
|
December 31,
2004
|
1,817,393
|
|||
|
December 31,
2005
|
2,336,669
|
II-
Capitalized Costs Relating to Oil And Gas Producing
Activities
(In
thousands)
|
As
of December 31,
|
|||||||
|
2005
|
2004
|
||||||
|
Oil
& gas properties:
|
|
|
|||||
|
Unproved
|
$
|
3,622
|
2,312
|
||||
|
Proved
|
59,096
|
56,218
|
|||||
|
Accumulated
depreciation, depletion and amortization
|
(53,695
|
)
|
(53,007
|
)
|
|||
|
Net
capitalized costs
|
$
|
9,023
|
5,523
|
||||
F-66
III-
Cost Incurred in Oil And Gas Property Acquisition,
Exploration
and Development Activities
(In
thousands)
|
For
the year ended
|
|||||||
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
Property
acquisitions costs
|
$
|
—
|
—
|
||||
|
Exploration
costs
|
1,310
|
405
|
|||||
|
Development
costs
|
2,878
|
45
|
|||||
|
Costs
incurred
|
$
|
4,188
|
450
|
||||
IV-
Results of operations for producing activities
(In
thousands)
|
For
the year ended
|
|||||||
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
Revenues
- Oil sales
|
$
|
11,891
|
6,393
|
||||
|
Production
costs
|
(2,452
|
)
|
(2,060
|
)
|
|||
|
Depreciation,
depletion and amortization
|
(697
|
)
|
(357
|
)
|
|||
|
Income
tax expenses
|
(2,892
|
)
|
(1,417
|
)
|
|||
|
Results
of operations
|
$
|
5,850
|
2,559
|
||||
V-
Standardized Measure of Discounted Future Net Cash Flows
(In
thousands)
|
As
of December 31,
|
|||||||
|
2005
|
2004
|
||||||
|
Future
cash inflows
|
$
|
112,721
|
64,626
|
||||
|
Future
production and development costs
|
(26,756
|
)
|
(21,553
|
)
|
|||
|
Future
income tax expense
|
(31,844
|
)
|
(15,952
|
)
|
|||
|
Future
net cash flows
|
54,121
|
27,121
|
|||||
|
10%
Annual discount factor
|
(15,688
|
)
|
(8,188
|
)
|
|||
|
Standardized
measure
|
$
|
38,433
|
18,933
|
||||
Changes
in the Standardized Measure of Discounted Future Net Cash Flows From Proved
Reserve Quantities During 2005
|
Balance
as of December 31, 2004
|
$
|
18,933
|
||
|
Sales
and transfers of oil and gas produced, net of production
costs
|
(9,439
|
)
|
||
|
Net
changes in prices and production costs
|
20,115
|
|||
|
Extensions,
discoveries and improved recover, net of related costs
|
25,626
|
|||
|
Development
costs incurred during the period
|
0
|
|||
|
Revision
of previous quantity estimates
|
(702
|
)
|
||
|
Accretion
of discount
|
1,175
|
|||
|
Net
change in income taxes
|
(15,892
|
)
|
||
|
Other
|
(1,383
|
)
|
||
|
Balance
as of December 31, 2005
|
$
|
38,433
|
F-67
64,409,425
Shares
Common
Stock
Prospectus
April
15,
2008