The following discussion of our financial condition and results of operations should be read in conjunction with the "Financial Statements" as set out in Part I, Item 1 of this Quarterly Report on Form 10-Q as well as the "Financial Statements and Supplementary Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Items 8 and 7, respectively, of our 2019 Annual Report on Form 10-K. Please see the cautionary language at the beginning of this Quarterly Report on Form 10-Q regarding the identification of and risks relating to forward-looking statements and the risk factors described in Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q, as well as Part I, Item 1A "Risk Factors" in our 2019 Annual Report on Form 10-K.
Financial and Operational Highlights
Key Highlights for the first quarter of 2020 • COVID-19 and decrease in world oil prices: • Following the advent of the COVID-19 outbreak, and resulting substantial decline in demand for oil and decrease in oil
prices, we
have taken the initiative to defer the majority of capital expenditures for the remainder of 2020, and shut-in minor
fields
that are not economic at current oil prices. We have
temporarily
suspended all development activities and operations in fields with zero or negative netbacks at current oil prices • All drilling and workover rigs have been stacked and operations suspended • During Q1 2020, world oil prices decreased significantly, with Brent decreasing from$63.90 per barrel in the first quarter of 2019 to$50.82 per barrel, falling as low as$22.74 per barrel by the end ofMarch 2020 • As a result of the significant decrease in oil prices, Q1 2020 has been a transitional quarter for our Company. Originally focused on production growth and free funds flow generation, we have shifted our focus to one of protecting our balance sheet and long-term value through reducing our production volumes, capital investments and operating and general and administrative ("G&A") costs • Net after royalties ("NAR") production was 25,371 BOEPD, 20% lower than
the first quarter of 2019. Production decreased as a result of unplanned
downtime caused by a local farmers' blockade impacting the Suroriente and
PUT-7 Blocks and the shut-in of minor fields due to low pricing partially
offset by a decrease in royalties driven by lower oil prices
• Oil and natural gas sales volumes(1) were 24,850 BOEPD, 22% lower than the
first quarter of 2019. The quarter's decrease in oil and gas sales volumes
was commensurate with lower production
• Net loss was
the first quarter of 2019 due to lower revenues primarily as a result of
collapse in oil price and lower sales volumes, unrealized loss on valuation of investment and goodwill impairment
• Funds flow from operations(2) decreased by 71% to
with the first quarter of 2019, as a result of lower production and a 20%
decrease in the price of Brent
• Adjusted EBITDA(2) was
first quarter of 2019
• Entered into additional 2020 oil price hedges to provide further downside
protection against a near-term, low oil price environment by securing
costless Brent collars. The new hedges complement our prior Brent oil
hedges in place which cover 6,000 bopd of production in the first half of
2020 • Q1 2020 capital expenditures totaled$44.3 million , a decrease of 53.1%
and 35.6% compared to the first and fourth quarters of 2019, respectively
• The remainder of our 2020 capital program was deferred, with only minimal
maintenance expenditures to be executed in 2020 at management's discretion
• Oil and gas sales per BOE were
2019
• Operating netback(2) per BOE was
• Operating expenses decreased 7% compared to the first quarter of 2019 due
to lower power generation and equipment rental costs resulting from
successful completion of power generation and expansion facilities in the
Acordionero field and cost savings attributed to the lower operating activities during the current quarter
• Significant progress has been made on lowering operating costs through the
renegotiation of vendor contracts at the end of the quarter and into the
second quarter. Additional operating cost initiatives include personnel
and rental equipment optimization. In addition to reducing operating
costs, we are also benefiting from the recent depreciation of the Canadian
dollar and Colombian peso. The Colombian peso declined 24% compared to the
(approximately 80%) within
expect the optimization of costs to be reflected in Q2 and beyond 14
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• Operating expenses per BOE were
of 2019 as a result of lower sales volumes and the fixed nature of a significant portion of our operating expenses • Workover expenses per BOE were$5.44 during the first quarter of 2020,
147% higher compared to the first quarter of 2019 as a result of fishing
and recompletion work in the Chuira field and workover jobs in the
Costayaco field
• Quality and transportation discount per BOE was
at wellhead during the first quarter of 2020 which resulted in a higher
transportation discount but lower transportation expenses, and a widening
of Vasconia and Castilla differentials
• Transportation expenses per BOE were
the first quarter of 2019. With the disruption of the OCP pipeline in
to ship our
in the city of Neiva, the capital of the
All other production was shipped by pipeline or truck under normal contract arrangements • General and administrative ("G&A") before stock-based compensation decreased 5% due to head-count optimization and reduction of overall G&A through a cost saving strategy used to manage operations in a low oil price environment. We continued taking further cost reduction steps
subsequent to the quarter, and the Executive Team and Board of Directors
have taken a 20% reduction in salary and retainer fees, respectively. In
addition, a number of cost optimization and efficiency measures are being implemented that will further reduce our G&A costs to be consistent with lower anticipated activity levels. We expect these changes to result in a reduction of 30% to 35% in G&A costs compared to our original budget • The unprecedented decline in oil prices and related suspension of our
capital program has significantly reduced our forecasted Covenant EBITDAX
("EBITDAX"). Based on current forward pricing, and forecasted production,
costs and total debt, which can change materially in short time frames,
especially in the current environment, our Company is not currently
forecasted to be able to comply with certain financial covenants in our
credit facility in the next twelve months. See "-Liquidity and Capital Resources." 15
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(Thousands of U.S. Dollars, unless Three Months Ended otherwise indicated) Three Months Ended March 31, December 31, 2020 2019 % Change 2019 Average Daily Volumes (BOEPD) Consolidated Working Interest Production Before Royalties 29,527 38,163 (23 ) 32,924 Royalties (4,156 ) (6,499 ) (36 ) (5,428 ) Production NAR 25,371 31,664 (20 ) 27,496 (Increase) Decrease in Inventory (521 ) 169 (408 ) 306 Sales(1) 24,850 31,833 (22 ) 27,802 Net (Loss) Income$ (251,626 ) $ 1,979 (12,815 )$ 27,004 Operating Netback Oil and Natural Gas Sales$ 86,079 $ 152,565 (44 )$ 127,934 Operating Expenses (32,285 ) (34,783 ) (7 ) (37,967 ) Workover Expenses (12,303 ) (6,289 ) 96 (11,093 ) Transportation Expenses (4,037 ) (8,103 ) (50 ) (4,233 ) Operating Netback(2)$ 37,454 $ 103,390 (64 )$ 74,641 G&A Expenses Before Stock-Based Compensation$ 7,440 $ 7,869 (5 )$ 8,518 G&A Stock-Based Compensation (Recovery) Expense (2,055 ) 1,727 (219 ) 338 G&A Expenses, Including Stock-Based Compensation$ 5,385 $ 9,596 (44 )$ 8,856 Adjusted EBITDA(2)$ 34,516 $ 93,913 (63 )$ 65,926 Funds Flow From Operations(2)$ 22,227 $ 75,450 (71 )$ 49,669 Capital Expenditures$ 44,277 $ 94,489 (53 )$ 68,735
(1) Sales volumes represent production NAR adjusted for inventory changes.
(2) Non-GAAP measures
Operating netback, EBITDA, Adjusted EBITDA and funds flow from operations are non-GAAP measures which do not have any standardized meaning prescribed under GAAP. Management views these measures as financial performance measures. Investors are cautioned that these measures should not be construed as alternatives to net (loss) income or other measures of financial performance as determined in accordance with GAAP. Our method of calculating these measures may differ from other companies and, accordingly, may not be comparable to similar measures used by other companies. Each non-GAAP financial measure is presented along with the corresponding GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. Operating netback, as presented, is defined as oil and natural gas sales less operating, workover and transportation expenses. Management believes that operating netback is a useful supplemental measure for management and investors to analyze financial performance and provides an indication of the results generated by our principal business activities prior to the consideration of other income and expenses. A reconciliation from oil and natural gas sales to operating netback is provided in the table above.
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EBITDA, as presented, is defined as net (loss) income adjusted for depletion, depreciation and accretion ("DD&A") expenses, interest expense and income tax expense. Adjusted EBITDA is defined as EBITDA adjusted for goodwill and inventory impairment, unrealized foreign exchange gain or loss, stock-based compensation expense or recovery, other loss and unrealized financial instruments gain or loss. Management uses these supplemental measures to analyze performance and income generated by our principal business activities prior to the consideration of how non-cash items affect that income (loss), and believes that this financial measure is useful supplemental information for investors to analyze our performance and our financial results. A reconciliation from net (loss) income to EBITDA and Adjusted EBITDA is as follows: Three Months Ended Three Months Ended March 31, December 31, (Thousands of U.S. Dollars) 2020 2019 2019 Net (loss) income$ (251,626 ) $ 1,979 $ 27,004 Adjustments to reconcile net (loss) income to EBITDA and Adjusted EBITDA DD&A expenses 57,294 62,921 60,603 Interest expense 12,810 7,938 12,613 Income tax expense 34,904 19,686 11,610 EBITDA (non-GAAP) (146,618 ) 92,524 111,830 Goodwill impairment 102,581 - - Inventory impairment 3,904 - - Unrealized foreign exchange loss (gain) 20,799 (3,283 ) (3,500 ) Stock-based compensation (recovery) expense (2,055 ) 1,727 338 Other loss - - 1,581 Unrealized financial instruments loss (gain) 55,905 2,945 (44,323 ) Adjusted EBITDA (non-GAAP) $ 34,516$ 93,913 $ 65,926 Funds flow from operations, as presented, is defined as net (loss) income adjusted for DD&A expenses, goodwill and inventory impairment, deferred tax expense, stock-based compensation (recovery) expense, amortization of debt issuance costs, non-cash lease expense, lease payments, unrealized foreign exchange gains and losses, financial instruments gains or losses, loss on redemption of Convertible Notes and cash settlement of financial instruments. Management uses this financial measure to analyze performance and income generated by our principal business activities prior to the consideration of how non-cash items affect that income (loss), and believes that this financial measure is also useful supplemental information for investors to analyze performance and our financial results. A reconciliation from net (loss) income to funds flow from operations is as follows:
Three Months Ended
Three Months Ended March 31, December 31, (Thousands of U.S. Dollars) 2020 2019 2019 Net (loss) income$ (251,626 ) $ 1,979 $ 27,004 Adjustments to reconcile net (loss) income to funds flow from operations DD&A expenses 57,294 62,921 60,603 Goodwill impairment 102,581 - - Inventory impairment 3,904 - - Deferred tax expense 34,606 8,323 8,475 Stock-based compensation (recovery) expense (2,055 ) 1,727 338 Amortization of debt issuance costs 844 838 802 Non-cash lease expense 490 - 440 Lease payments (515 ) - (366 ) Unrealized foreign exchange loss (gain) 20,799 (3,283 ) (3,500 ) Financial instruments loss (gain) 52,418 3,165 (43,325 ) Loss on redemption of Convertible Notes - - 196 Cash settlement of financial instruments 3,487 (220 ) (998 ) Funds flow from operations (non-GAAP) $ 22,227$ 75,450 $ 49,669 17
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Additional Operational Results
Three Months Ended Three Months Ended March 31, December 31, 2020 2019 % Change 2019 (Thousands ofU.S. Dollars) Oil and natural gas sales$ 86,079 $ 152,565 (44 )$ 127,934 Operating expenses 32,285 34,783 (7 ) 37,967 Workover expenses 12,303 6,289 96 11,093 Transportation expenses 4,037 8,103 (50 ) 4,233 Operating netback(1) 37,454 103,390 (64 ) 74,641 DD&A expenses 57,294 62,921 (9 ) 60,603 Goodwill impairment 102,581 - 100 - Inventory impairment 3,904 - 100 - G&A expenses before stock-based compensation 7,440 7,869 (5 ) 8,518 G&A stock-based compensation (recovery) expense (2,055 ) 1,727 (219 ) 338 Severance expenses 1,322 672 97 689 Foreign exchange loss (gain) 18,807 (2,434 ) 873 (4,954 ) Financial instruments loss (gain) 52,418 3,165 1,556 (43,325 ) Other loss - - - 1,581 Interest expense 12,810 7,938 61 12,613 254,521 81,858 211 36,063 Interest income 345 133 159 36 (Loss) Income before income taxes (216,722 ) 21,665 (1,100 ) 38,614 Current income tax expense 298 11,363 (97 ) 3,135 Deferred income tax expense 34,606 8,323 316 8,475 34,904 19,686 77 11,610 Net (loss) income$ (251,626 ) $ 1,979 (12,815 )$ 27,004 Sales Volumes (NAR) Total sales volumes, BOEPD 24,850 31,833 (22 ) 27,802 Brent Price per bbl$ 50.82 $ 63.90 (20 )$ 62.42 Consolidated Results of Operations per BOE Sales Volumes NAR Oil and natural gas sales$ 38.07 $ 53.25 (29 )$ 50.02 Operating expenses 14.28 12.14 18 14.84 Workover expenses 5.44 2.20 147 4.34 18
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Transportation expenses 1.79 2.83 (37 ) 1.65 Operating netback(1) 16.56 36.08 (54 ) 29.19 DD&A expenses 25.34 21.96 15 23.69 Goodwill impairment 45.36 - 100 - Inventory impairment 1.73 - 100 - G&A expenses before stock-based compensation 3.29 2.75 20 3.33 G&A stock-based compensation (recovery) expense (0.91 ) 0.60 (252 ) 0.13 Severance expenses 0.58 0.23 152 0.27 Foreign exchange loss (gain) 8.32 (0.85 ) 1,079 (1.94 ) Financial instruments loss (gain) 23.18 1.10 2,007 (16.94 ) Other loss - - - 0.62 Interest expense 5.66 2.77 104 4.93 112.55 28.56 294 14.09 Interest income 0.15 0.05 200 0.01 (Loss) Income before income taxes (95.84 ) 7.57 (1,366 ) 15.11 Current income tax expense 0.13 3.97 (97 ) 1.23 Deferred income tax expense 15.30 2.91 426 3.31 15.43 6.88 124 4.54 Net (loss) income$ (111.27 ) $ 0.69 (16,226 )$ 10.57
(1) Operating netback is a non-GAAP measure which does not have any standardized meaning prescribed under GAAP. Refer to "Financial and Operational Highlights-non-GAAP measures" for a definition of this measure.
Oil and Gas Production and Sales Volumes, BOEPD
Three Months Ended March 31, 2020 2019 Average Daily Volumes (BOEPD) Working Interest Production Before Royalties 29,527 38,163 Royalties (4,156 ) (6,499 ) Production NAR 25,371 31,664 (Increase) Decrease in Inventory (521 )
169
Sales 24,850
31,833
Royalties, % of Working Interest Production Before Royalties 14 % 17 % Oil and gas production NAR for the three months endedMarch 31, 2020 , decreased by 20% compared with the corresponding period of 2019. The decrease in production was a result of the shut-in of several fields due to the following reasons: • We have temporarily suspended fields with zero or negative netbacks at current oil prices. At present, most of our minor fields have been suspended
• Oil production remains shut-in and waterflood operations remain suspended
at the Suroriente and PUT-7 Blocks in the southern Putumayo region due to
a local farmers' blockade
• In addition, production wells in producing fields that are awaiting
routine mechanical workovers will remain offline during the low-price environment 19
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Royalties as a percentage of production for the three months endedMarch 31, 2020 , decreased compared with the corresponding period of 2019 commensurate with the decrease in benchmark oil prices and the price sensitive royalty regime inColombia . Operating Netback Three Months Ended March 31, (Thousands of U.S. Dollars) 2020 2019 Oil and Natural Gas Sales$ 86,079 $ 152,565 Transportation Expenses (4,037 ) (8,103 ) 82,042 144,462 Operating Expenses (32,285 ) (34,783 ) Workover Expenses (12,303 ) (6,289 ) Operating Netback(1)$ 37,454 $ 103,390 U.S. Dollars Per BOE Sales Volumes NAR Brent$ 50.82 $
63.90
Quality and Transportation Discounts (12.75 ) (10.65 ) Average Realized Price 38.07 53.25 Transportation Expenses (1.79 ) (2.83 ) Average Realized Price Net of Transportation Expenses 36.28 50.42 Operating Expenses (14.28 ) (12.14 ) Workover Expenses (5.44 ) (2.20 ) Operating Netback(1)$ 16.56 $ 36.08
(1) Operating netback is a non-GAAP measure which does not have any standardized meaning prescribed under GAAP. Refer to "Financial and Operational Highlights-non-GAAP measures" for a definition of this measure.
Oil and gas sales for the three months endedMarch 31, 2020 , decreased 44% to$86.1 million as a result of 20% decrease in Brent, 22% lower sales volumes and higher quality and transportation discounts, compared with the corresponding period of 2019. Compared with the prior quarter, oil and gas sales decreased 33% as a result of 19% decrease in Brent, 11% lower sales volumes and higher quality and transportation discounts. Vasconia discount to Brent was$5.19 per boe for the three months endedMarch 31, 2020 compared to$3.56 in the corresponding period of 2019 and$3.18 in the prior quarter. In addition, the Castilla discount to Brent was$9.71 per boe for three months endedMarch 31, 2020 compared to$6.54 per boe in the corresponding period of 2019 and$7.08 per boe in the prior quarter.
The following table shows the effect of changes in realized price and sales
volumes on our oil and gas sales for the three months ended
First Quarter
2020 First Quarter 2020
Compared with Fourth Compared with First (Thousands of U.S. Dollars) Quarter 2019 Quarter 2019
Oil and natural gas sales for the comparative period $ 127,934
$ 152,565 Realized sales price decrease effect (27,028 ) (34,338 ) Sales volumes decrease effect (14,827 ) (32,148 ) Oil and natural gas sales for the three month ended March 31, 2020 $ 86,079 $ 86,079 Average realized price for the three months endedMarch 31, 2020 decreased 29%, compared with the corresponding period of 2019. The decrease was commensurate with the decrease in benchmark oil prices. Compared with the prior quarter, the average realized price decreased 24%. We have options to sell our oil through multiple pipelines and trucking routes. Each option has varying effects on realized sales price and transportation expenses. The following table shows the percentage of oil volumes we sold inColombia using each option for the three months endedMarch 31, 2020 and 2019, and the prior quarter: Three Months Ended December Three Months Ended March 31, 31, 2020 2019 2019 Volume transported through pipeline 1 % 3 % - % Volume sold at wellhead 48 % 43 % 42 % Volume transported via truck to sales point 51 % 54 % 58 % 100 % 100 % 100 % Volumes transported through pipeline or via truck receive higher realized price, but incur higher transportation expenses. Volumes sold at the wellhead have the opposite effect of lower realized price, offset by lower transportation expenses. Transportation expenses for the three months endedMarch 31, 2020 , decreased 50% to$4.0 million , compared with the corresponding period of 2019. On a per BOE basis, transportation expenses decreased 37% to$1.79 , compared with the corresponding period of 2019. Lower transportation expenses were a result of lower sales volumes and higher volumes sold at the wellhead where the transportation is netted against sales price, partially offset by utilization of the OTA pipeline which had higher transportation costs per BOE. For the three months endedMarch 31, 2020 , transportation expenses decreased 5% compared with$4.2 million in the prior quarter as a result of lower sales volumes. On a per BOE basis, transportation expenses increased 8% from$1.65 in the prior quarter due to utilization of the OTA pipeline during the current quarter which had higher transportation cost per BOE. Operating expenses for the three months endedMarch 31, 2020 , decreased 7% to$32.3 million , compared with the corresponding period of 2019 primarily due to lower power generation and equipment rental costs resulting from successful completion of power generation and expansion facilities in the Acordionero field and cost saving attributed to the lower operating activities during the current quarter. On a per BOE basis, operating expenses increased by$2.14 , compared to the corresponding period of 2019, primarily as a result of lower sales volumes and the fixed nature of a significant portion of our operating costs. We have recently identified many cost saving initiatives, the majority of which were implemented in March and April of 2020, with the impact to be realized in Q2 and subsequent quarters. Operating expenses for the three months endedMarch 31, 2020 , decreased 15% compared with the prior quarter. On a per BOE basis, operating expenses for the three months endedMarch 31, 2020 , decreased 4%, or$0.56 , primarily as a result of lower power generation and cost savings attributed to the lower operating activities partially offset by lower sales volumes during the quarter. Significant portion of our operating expenses are of a fixed nature. Workover expenses on a per BOE basis increased to$5.44 for the three months endedMarch 31, 2020 , compared to$2.20 in the corresponding period of 2019 due to fishing and recompletion work in the Chuira field and workover jobs in the Costayaco field which had higher costs per BOE than workover jobs performed in the corresponding period of 2019. Workover expenses increased by$1.10 per BOE compared to the prior quarter due to more extensive workover jobs performed during the current quarter.
DD&A Expenses
Three Months EndedMarch 31, 2020
2019
DD&A Expenses, thousands of U.S. Dollars$ 57,294 $
62,921
DD&A Expenses, U.S. Dollars per BOE 25.34 21.96 20
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DD&A expenses for the three months endedMarch 31, 2020 , decreased 9% and increased by$3.38 per BOE, compared to the corresponding period of 2019 due to lower costs in the depletable base and lower sales volumes. For the three months endedMarch 31, 2020 DD&A expenses decreased 5% from the prior quarter primarily due to lower proved reserves. On a per BOE bases, DD&A expenses increased$1.65 from the prior quarter due to lower proved reserves and lower sales volumes during the current quarter.
Impairment
Three Months Ended March 31, (Thousands of U.S. Dollars) 2020 2019 Impairment of inventory $ 3,904 $ - Impairment of goodwill 102,581 - $ 106,485 $ - Asset Impairment Based on ceiling test calculation results, no asset impairment losses were recorded for the three month endedMarch 31, 2020 and 2019. We used an average Brent price of$67.49 per bbl for the purposes of theMarch 31, 2020 ceiling test calculations (March 31, 2019 -$70.64 ). The continued decline in the trailing price significantly increases the risk of ceiling test impairments in Q2, 2020 and beyond. Inventory Impairment For the three months endedMarch 31, 2020 , we recorded$3.9 million relating to the impairment of inventory due to the decline in commodity pricing. There was no inventory impairment for the three months endedMarch 31, 2019 .
Goodwill Impairment
For the three months endedMarch 31, 2020 , we recorded$102.6 million impairment of goodwill relating to ourColombia business unit. The impairment was due to the carrying value of the unit exceeding its fair value as a result of the cumulative impact of the shut-in of uneconomic oil production in and lower forecasted commodity prices. The estimated fair value of theColombia unit for the goodwill impairment test was based on the discounted after-tax cash flows associated with the proved and probable reserves of the reporting unit. AtMarch 31, 2020 , goodwill consisted entirely of$102.6 million relating to theSolana Resources Limited andArgosy Energy International L.P. acquisitions, in 2008 and 2006 respectively. There was no goodwill impairment for the three months endedMarch 31, 2019 . G&A Expenses Three Months Ended December Three Months Ended March 31, 31, (Thousands of U.S. Dollars) 2020 2019 % Change 2019 G&A Expenses Before Stock-Based Compensation$ 7,440 $ 7,869 (5 ) $ 8,518 G&A Stock-Based Compensation (Recovery) Expense (2,055 ) 1,727 (219 ) 338 G&A Expenses, Including Stock-Based Compensation$ 5,385 $ 9,596 (44 ) $8,856 U.S. Dollars Per BOE Sales Volumes NAR G&A Expenses Before Stock-Based Compensation$ 3.29 $ 2.75 20 $ 3.33 G&A Stock-Based Compensation (Recovery) Expense (0.91 ) 0.60 (252 ) 0.13 G&A Expenses, Including Stock-Based Compensation$ 2.38 $ 3.35 (29 ) $ 3.46 For the three months endedMarch 31, 2020 , G&A expenses before stock-based compensation decreased 5% from the corresponding period of 2019 due to headcount optimization and lower consulting, legal and travel expenses during the current quarter. On a per BOE basis, G&A expenses before stock-based compensation increased 20%, from the corresponding period of 2019 as a result of lower sales volumes. For the three months endedMarch 31, 2020 , G&A expenses before stock-based compensation decreased 13% (1% per BOE) from the prior quarter primarily due to head count optimization and lower consulting and legal fees.
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G&A expenses after stock-based compensation for the three months endedMarch 31, 2020 , decreased 44% (29% per BOE) compared to the corresponding period of 2019 and decreased 39% (31% per BOE) compared with the prior quarter, mainly due to lower G&A stock-based compensation resulting from a lower share price during the current quarter. Severance Severance costs for the three months endedMarch 31, 2020 increased 97% and 92%, respectively, compared to the corresponding period of 2019 and prior quarter. The increase was commensurate with headcount optimization during the current quarter.
Foreign Exchange Gains and Losses
For the three months endedMarch 31, 2020 , we had an$18.8 million loss on foreign exchange, compared with a$2.4 million and$5.0 million gain in the corresponding period of 2019 and the prior quarter, respectively. Taxes receivable, deferred income taxes and investment are considered monetary assets, and require translation from local currency toU.S. dollar functional currency at each balance sheet date. This translation was the main source of the foreign exchange losses and gains in the periods.
The following table presents the change in the
Three Months EndedMarch 31, 2020 2019 strengthened by weakened by Change in theU.S. dollar against the Colombian peso 24%
2%
strengthened by weakened by Change in theU.S. dollar against the Canadian dollar 9%
2%
Financial Instrument Gains and Losses
The following table presents the nature of our financial instruments gains and
losses for the three months ended
Three Months Ended March 31, (Thousands of U.S. Dollars) 2020 2019
Commodity price derivative (gain) loss
5,452 - Investment loss 65,285 1,971 Financial instruments loss $ 52,418$ 3,165 Income Tax Expense Three Months Ended March 31, (Thousands of U.S. Dollars) 2020 2019
Income (loss) before income tax
Current income tax expense $ 298$ 11,363 Deferred income tax expense 34,606 8,323 Total income tax expense$ 34,904 $ 19,686 Effective tax rate (16 )% 91 % Current income tax expense was lower for the three months endedMarch 31, 2020 , compared with the corresponding period of 2019, primarily as a result of lower income inColombia . The deferred income tax was higher for the three months ended March
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31, 2020, compared to the corresponding period of 2019, primarily as a result of previous losses incurred inColombia that are now fully offset by a valuation allowance. For the three months endedMarch 31, 2020 , the difference between the effective tax rate of (16)% and the 32% Colombian tax rate was primarily due to an increase in the valuation allowance, the goodwill impairment which is not deductible for tax purposes, the non-deductible portion (50%) of the unrealized loss on the PetroTal shares and foreign translation adjustments. For the three months endedMarch 31, 2019 , the difference between the effective tax rate of 91% and the 33% Colombian tax rate was primarily due to a decrease in the valuation allowance, foreign translation adjustment, a non-deductible third party royalty inColombia , stock based compensation and other permanent differences. These were partially offset by the impact of foreign tax rates. 23
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