GRAN TIERRA ENERGY INC. 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 7 and 8, respectively, of our 2021 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 2021 Annual Report on Form 10-K.
Financial and Operational Highlights
Key Highlights for the second quarter of 2022
•Net income in the second quarter of 2022 was$53.0 million or$0.14 per share basic and diluted, compared to a net loss of$17.6 million or$(0.05) per share basic and diluted in the second quarter of 2021 •Income before income taxes in the second quarter of 2022 was$91.6 million compared to a loss before income taxes of$8.4 million in the second quarter of 2021
•During the second quarter of 2022, we completely repaid the amount drawn under
the revolving credit facility, and as of
•Funds flow from operations(2) increased by 345% to
•During the second quarter, the Company generated
•NAR production for the second quarter of 2022 was 23,215 BOPD representing a 22% increase from 18,976 BOPD in the second quarter of 2021, primarily due to a successful drilling and workover campaign in the Acordionero and Costayaco fields. NAR production was comparable to the first quarter of 2022 •Sales volumes for the second quarter of 2022 were 22,847 BOPD representing a 24% increase from 18,454 BOPD in the second quarter of 2021 and was comparable to the first quarter of 2022 •Oil sales were$205.8 million , 113% higher compared to$96.6 million in the second quarter of 2021, as a result of a 62% increase in Brent price and higher sales volumes offset by higher quality and transportation discounts. Oil sales increased by 18% compared to$174.6 million in the first quarter of 2022 as a result of a 14% increase in Brent price, partially offset by higher quality and transportation discounts •Operating expenses were$39.5 million , 50% higher than$26.2 million in the second quarter of 2021, due to increased workovers and higher power generation costs as a result of increased production in all major fields. Operating expenses increased by 13% from$34.9 million in the first quarter of 2022, primarily due to higher workover activities during current quarter •Transportation expenses decreased by 16% compared to the second quarter of 2021. During the second quarter of 2021, there was a change in delivery points in response to national blockades inColombia , which resulted in higher transportation costs for the period. Compared to the first quarter of 2022, transportation expenses decreased by 11% as a result of a change in transportation routes which had lower transportation costs per bbl •Operating netback(2) increased by 143% to$163.8 million compared to$67.4 million in the second quarter of 2021 and increased 20% from$136.8 million in the first quarter of 2022
•Adjusted EBITDA(2) increased by 286% to
•Quality and transportation discounts for the second quarter of 2022, increased to$13.00 per bbl compared to$11.54 per bbl in the second quarter of 2021 and$12.57 per bbl in the first quarter of 2022 •General and administrative expenses ("G&A") before stock-based compensation increased by 10% compared to the second quarter of 2021 due to higher costs for special projects and travel costs in the current quarter. G&A expenses before stock-based compensation were comparable to the first quarter of 2022
•Capital additions for the second quarter of 2022 were
16
--------------------------------------------------------------------------------
(Thousands of U.S. Dollars, Three Months unless otherwise Ended March indicated) Three Months Ended June 30, 31,
Six Months Ended
2022 2021 % Change 2022 2022 2021 % Change
Average Daily
Volumes (BOPD)
Consolidated
Working Interest
("WI")
Production
Before Royalties 30,607 23,035 33 29,362 29,988 23,745 26
Royalties (7,392) (4,059) 82 (6,529) (6,962) (3,995) 74
Production NAR 23,215 18,976 22 22,833 23,026 19,750 17
Increase in
Inventory (368) (522) 30 (103) (236) (393) 40
Sales(1) 22,847 18,454 24 22,730 22,790 19,357 18
Net Income
(Loss) $ 52,972 $ (17,627) 401 $ 14,119 $ 67,091 $ (55,049) 222
Operating
Netback
Oil Sales $ 205,785 $ 96,623 113 $ 174,569 $ 380,354 $ 192,116 98
Operating
Expenses (39,494) (26,247) 50 (34,935) (74,429) (56,918) 31
Transportation
Expenses (2,513) (3,002) (16) (2,834) (5,347) (5,601) (5)
Operating
Netback(2) $ 163,778 $ 67,374 143 $ 136,800 $ 300,578 $ 129,597 132
G&A Expenses
Before
Stock-Based
Compensation $ 7,847 $ 7,133 10 $ 7,779 $ 15,626 $ 13,950 12
G&A Stock-Based
Compensation
Expense 1,989 1,873 6 4,557 6,546 5,544 18
G&A Expenses,
Including
Stock-Based
Compensation $ 9,836 $ 9,006 9 $ 12,336 $ 22,172 $ 19,494 14
Adjusted $ 140,113 $ 36,299 286 $ 259,491 $ 78,203 232
EBITDA(2) $ 119,378
Funds Flow From
Operations(2) $ 103,625 $ 23,272 345 $ 87,310 $ 190,935 $ 52,245 265
Capital
Expenditures $ 65,199 $ 37,384 74 $ 41,483 $ 106,682 $ 74,811 43
(1) Sales volumes represent production NAR adjusted for inventory changes.
(2) Non-GAAP measures
Operating netback, EBITDA, adjusted EBITDA, funds flow from operations, and free
cash flow are non-GAAP measures that 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 oil sales, net income (loss) 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. Disclosure of each
non-GAAP financial measure is preceded by 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 sales less operating 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 sales to operating netback is provided in the table
above.
EBITDA, as presented, is defined as net income or loss adjusted for depletion,
depreciation and accretion ("DD&A") expenses, interest expense and income tax
expense. Adjusted EBITDA, as presented, is defined as EBITDA adjusted for
non-cash lease expense, lease payments, unrealized foreign exchange gain or
loss, stock-based compensation expense or recovery, unrealized derivative
instruments gain or loss, and other financial instruments gain or loss.
Management uses this supplemental measure to analyze performance and income
generated by our principal business activities prior to the consideration of how
non-cash items affect that income and believes that this financial measure is
useful supplemental information for investors to analyze our performance and our
financial results. A reconciliation from net income (loss) to EBITDA and
adjusted EBITDA is as follows:
17
--------------------------------------------------------------------------------
Three Months
Three Months Ended June 30, Ended March 31, Six Months Ended June 30,
(Thousands of U.S. Dollars) 2022 2021 2022 2022 2021
Net income (loss) $ 52,972 $ (17,627) $ 14,119 $ 67,091 $ (55,049)
Adjustments to reconcile net income
(loss) to EBITDA and Adjusted EBITDA
DD&A expenses 42,216 28,927 40,963 83,179 60,245
Interest expense 12,194 13,935 12,128 24,322 27,747
Income tax expense 38,666 9,189 39,540 78,206 17,840
EBITDA (non-GAAP) $ 146,048 $ 34,424 $ 106,750 $ 252,798 $ 50,783
Non-cash lease expense 747 370 411 1,158 814
Lease payments (388) (393) (344) (732) (855)
Unrealized foreign exchange loss
(gain) 4,341 477 (4,839) (498) 13,480
Stock-based compensation expense 1,989 1,873 4,557 6,546 5,544
Unrealized derivative instruments
(gain) loss (12,624) (3,066) 12,843 219 7,228
Other financial instruments loss - 2,614 - - 1,209
Adjusted EBITDA (non-GAAP) $ 140,113 $ 36,299
Funds flow from operations, as presented, is defined as net income or loss
adjusted for DD&A expenses, deferred tax expense or recovery, stock-based
compensation expense or recovery, amortization of debt issuance costs, non-cash
lease expense, lease payments, unrealized foreign exchange gain or loss,
derivative instruments gain or loss, cash settlement on derivative instruments
and other financial instruments gain or loss. 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
and believes that this financial measure is also useful supplemental information
for investors to analyze performance and our financial results. Free cash flow,
as presented, is defined as funds flow less capital expenditures. Management
uses this financial measure to analyze cash flow generated by our principal
business activities after capital requirements and believes that this financial
measure is also useful supplemental information for investors to analyze
performance and our financial results. A reconciliation from net income (loss)
to funds flow from operations, and free cash flow is as follows:
Three Months
Three Months Ended June 30, Ended March 31, Six Months Ended June 30,
(Thousands of U.S. Dollars) 2022 2021 2022 2022 2021
Net income (loss) $ 52,972 $ (17,627) $ 14,119 $ 67,091 $ (55,049)
Adjustments to reconcile net income
(loss) to funds flow from operations
DD&A expenses 42,216 28,927 40,963 83,179 60,245
Deferred tax expense 13,241 9,203 18,713 31,954 17,854
Stock-based compensation expense 1,989 1,873 4,557 6,546 5,544
Amortization of debt issuance costs 1,131 894 887 2,018 1,775
Non-cash lease expense 747 370 411 1,158 814
Lease payments (388) (393) (344) (732) (855)
Unrealized foreign exchange loss
(gain) 4,341 477 (4,839) (498) 13,480
Derivative instruments loss 5,172 21,239 21,439 26,611 44,937
Cash settlements on derivative
instruments (17,796) (24,305) (8,596) (26,392) (37,709)
Other financial instruments loss - 2,614 - - 1,209
Funds flow from operations (non-GAAP) $ 103,625 $ 23,272 $ 87,310 $ 190,935 $ 52,245
Capital expenditures $ 65,199 $ 37,384 $ 41,483 $ 106,682 $ 74,811
Free cash flow (non-GAAP) $ 38,426 $ (14,112) $ 45,827 $ 84,253 $ (22,566)
18--------------------------------------------------------------------------------
Additional Operational Results
Three Months
Three Months Ended June 30, Ended March 31, Six Months Ended June 30,
(Thousands of U.S. Dollars) 2022 2021 % Change 2022 2022 2021 % Change
Oil sales $ 205,785 $ 96,623 113 $ 174,569 $ 380,354 $ 192,116 98
Operating expenses 39,494 26,247 50 34,935 74,429 56,918 31
Transportation expenses 2,513 3,002 (16) 2,834 5,347 5,601 (5)
Operating netback(1) 163,778 67,374 143 136,800 300,578 129,597 132
DD&A expenses 42,216 28,927 46 40,963 83,179 60,245 38
G&A expenses before stock-based
compensation 7,847 7,133 10 7,779 15,626 13,950 12
G&A stock-based compensation
expense 1,989 1,873 6 4,557 6,546 5,544 18
Foreign exchange loss (gain) 2,722 91 2,891 (3,725) (1,003) 13,174 (108)
Derivative instruments loss 5,172 21,239 (76) 21,439 26,611 44,937
(41)
Other financial instruments loss - 2,614 (100) - - 1,209 (100)
Interest expense 12,194 13,935 (12) 12,128 24,322 27,747 (12)
72,140 75,812 (5) 83,141 155,281 166,806 (7)
Income (loss) before income taxes 91,638 (8,438) 1,186 53,659 145,297 (37,209) 490
Current income tax expense 25,425 (14) 181,707 20,827 46,252 (14) 330,471
Deferred income tax expense 13,241 9,203 44 18,713 31,954 17,854 79
38,666 9,189 321 39,540 78,206 17,840 338
Net income (loss) $ 52,972 $ (17,627) 401 $ 14,119 $ 67,091 $ (55,049) 222
Sales Volumes (NAR)
Total sales volumes, BOPD 22,847 18,454 24 22,730 22,847 19,357 18
Brent Price per bbl $ 111.98 $ 69.08 62 $ 97.90 $ 104.94 $ 65.23 61
Consolidated Results of Operations
per bbl Sales Volumes NAR
Oil sales $ 98.98 $ 57.54 72 $ 85.33 $ 92.21 $ 54.83 68
Operating expenses 19.00 15.62 22 17.08 18.04 16.24 11
Transportation expenses 1.21 1.79 (32) 1.39 1.30 1.60 (19)
Operating netback(1) 78.77 40.13 96 66.86 72.87 36.99 97
DD&A expenses 20.31 17.23 18 20.02 20.17 17.20 17
G&A expenses before stock-based
compensation 3.77 4.25 (11) 3.80 3.79 3.98 (5)
G&A stock-based compensation
expense 0.96 1.12 (14) 2.23 1.59 1.58 1
Foreign exchange loss (gain) 1.31 0.05
2,520 (1.82) (0.24) 3.76 (106)
19--------------------------------------------------------------------------------
Derivative instruments loss 2.49 12.65 (80) 10.48 6.45 12.83 (50)
Other financial instruments
loss - 1.56 (100) - - 0.35 (100)
Interest expense 5.87 8.30 (29) 5.93 5.90 7.92 (26)
34.71 45.16 (23) 40.64 37.66 47.62 (21)
Income (loss) before income
taxes 44.06 (5.03) 976 26.22 35.21 (10.63) 431
Current income tax expense 12.23 (0.01) 122,400 10.18 11.21 - 100
Deferred income tax expense 6.37 5.48 16 9.15 7.75 5.10 52
18.60 5.47 240 19.33 18.96 5.10 272
Net income (loss) $ 25.46 $ (10.50) 342 $ 6.89 $ 16.25 $ (15.73) 203
(1) Operating netback is a non-GAAP measure that 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 Production and Sales Volumes, BOPD
Three Months Ended
Three Months Ended June 30, March 31, Six Months Ended June 30,
2022 2021 2022 2022 2021
Average Daily Volumes (BOPD)
WI Production Before Royalties 30,607 23,035 29,362 29,988 23,745
Royalties (7,392) (4,059) (6,529) (6,962) (3,995)
Production NAR 23,215 18,976 22,833 23,026 19,750
Increase in Inventory (368) (522) (103) (236) (393)
Sales 22,847 18,454 22,730 22,790 19,357
Royalties, % of WI Production
Before Royalties 24 % 18 % 22 % 23 % 17 %
Oil production NAR for the three and six months ended
Royalties as a percentage of production for the three and six months endedJune 30, 2022 , increased to 24% and 23% compared to the corresponding periods of 2021 and increased compared to the prior quarter commensurate with the increase in benchmark oil prices and the price sensitive royalty regime inColombia .
20
--------------------------------------------------------------------------------
[[Image Removed: gte-20220630_g1.jpg]]
[[Image Removed: gte-20220630_g2.jpg]]
The Midas block includes the Acordionero, Chuira, and Ayombero oil fields, and
the Chaza block includes the Costayaco and Moqueta oil fields.
21
--------------------------------------------------------------------------------
Operating Netback
Three Months
Three Months Ended June 30, Ended March 31, Six Months Ended June 30,
(Thousands of U.S. Dollars) 2022 2021 2022 2022 2021
Oil Sales $ 205,785 $ 96,623 $ 174,569 $ 380,354 $ 192,116
Transportation Expenses (2,513) (3,002) (2,834) (5,347) (5,601)
203,272 93,621 171,735 375,007 186,515
Operating Expenses (39,494) (26,247) (34,935) (74,429) (56,918)
Operating Netback(1) $ 163,778 $ 67,374 $
136,800
(U.S. Dollars Per bbl Sales Volumes NAR) Brent$ 111.98 $ 69.08 $ 97.90 $ 104.94 $ 65.23 Quality and Transportation Discounts (13.00) (11.54) (12.57) (12.73) (10.40) Average Realized Price 98.98 57.54 85.33 92.21 54.83 Transportation Expenses (1.21) (1.79) (1.39) (1.30) (1.60) Average Realized Price Net of Transportation Expenses 97.77 55.75 83.94 90.91 53.23 Operating Expenses (19.00) (15.62) (17.08) (18.04) (16.24) Operating Netback(1) $ 78.77$ 40.13 $
66.86
(1) Operating netback is a non-GAAP measure that does not have any standardized meaning prescribed under GAAP. Refer to "Financial and Operational Highlights-non-GAAP measures" for a definition of this measure.
[[Image Removed: gte-20220630_g3.jpg]]
22
--------------------------------------------------------------------------------
[[Image Removed: gte-20220630_g4.jpg]] [[Image Removed: gte-20220630_g5.jpg]] Oil sales for the three months endedJune 30, 2022 , increased by 113% to$205.8 million due to a 62% increase in Brent price and 24% higher sales volumes, partially offset by a 13% increase in the quality and transportation discounts as a result of the widening of the Castilla and Vasconia differentials to$7.82 and$5.09 per bbl for the three months endedJune 30, 2022 from$5.02 and$2.89 for the corresponding period of 2021, respectively. For the six months endedJune 30, 2022 , oil sales increased by 98% to$380.4 million compared to the corresponding period of 2021 due to 61% increase in Brent price and 18% higher sales volumes, partially offset by 22% increase in the quality and transportation discounts as a result of widening of Castilla and Vasconia differentials to$7.10 and$4.35 for the six months endedJune 30, 2022 from$4.50 and$2.65 per bbl for the corresponding period of 2021, respectively. Compared to the prior quarter, oil sales increased 18%, primarily as a result of a 14% increase in Brent price, partially offset by 3% higher quality and transportation discounts.
23
--------------------------------------------------------------------------------
The following table shows the effect of changes in realized price and sales
volumes on our oil sales for the three and six months ended
Six Months
Second Quarter 2022 Second Quarter 2022 Ended June 30,
Compared with First Compared with 2022 Compared
Quarter 2022 Second Quarter 2021 with Six
Months Ended
(Thousands of U.S. Dollars) June 30, 2021
Oil sales for the comparative period $ 174,569 $ 96,623 $ 192,116
Realized sales price increase effect 28,371 86,159 154,176
Sales volumes increase effect 2,845 23,003 34,062
Oil sales for the three and six months ended
June 30, 2022 $ 205,785 $ 205,785 $ 380,354
The average realized price for the three and six months ended June 30, 2022 ,
increased by 72% and 68%, compared to the corresponding periods of 2021. The
increase was commensurate with the increase in benchmark oil prices, offset by
higher Castilla and Vasconia differentials. Compared to the prior quarter, the
average realized price increased 16% due to higher benchmark oil prices, offset
by higher Castilla and Vasconia differentials.
Operating expenses for the three months ended June 30, 2022 , increased by 50% to
$39.5 million or by $3.38 per bbl to $19.00 per bbl, primarily as a result of
$1.16 per bbl increased workovers and $1.95 per bbl higher power generation
costs as a result of increased production in all major fields compared to the
corresponding period of 2021. Lower operating activities during the second
quarter of 2021 were attributed to national blockades in Colombia affecting all
major fields.
Operating expenses for the six months ended June 30, 2022 , increased by 31% to
$74.4 million or by $1.80 per bbl to $18.04 per bbl, primarily due to $0.58 per
bbl increased workovers and $1.11 per bbl higher power generation costs as a
result of increased production in all major fields. Compared to the prior
quarter, operating expenses increased by 13% or $1.92 per bbl from $34.9 million
or $17.08 per bbl, primarily due to higher workover activities.
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 in
Colombia using each option for the three and six months ended June 30, 2022 and
2021, and the prior quarter:
Three Months
Three Months Ended June 30, Ended March 31, Six Months Ended June 30,
2022 2021 2022 2022 2021
Volume transported through
pipeline - % 9 % - % - % 5 %
Volume sold at wellhead 48 % 67 % 47 % 48 % 58 %
Volume transported via truck to
sales point 52 % 24 % 53 % 52 % 37 %
100 % 100 % 100 % 100 % 100 %
Volumes transported through pipeline or via truck receive a higher realized
price but incur higher transportation expenses. Conversely, volumes sold at the
wellhead have the opposite effect of a lower realized price, offset by lower
transportation expenses.
Transportation expenses for the three and six months ended June 30, 2022 ,
decreased by 16% and 5% to $2.5 million and $5.3 million , respectively, compared
to the corresponding periods of 2021. On a per bbl basis, transportation
expenses decreased by 32% and 19% to $1.21 and $1.30 for the three and six
months ended June 30, 2022 compared to the corresponding periods of 2021. The
decrease in transportation expenses per bbl compared to the corresponding
periods of 2021 was a result of change in transportation routes that had lower
transportation costs per bbl. During the second quarter of 2021, there was a
change in delivery points in response to national blockades in Colombia which
had higher transportation costs per bbl.
For the three months ended June 30, 2022 , transportation expenses decreased by
11% compared to $2.8 million in the prior quarter. On a per bbl basis,
transportation expenses decreased by 13% from $1.39 in the prior quarter due to
higher volumes
24
--------------------------------------------------------------------------------
sold at wellhead and lower volumes transported from Suroriente block which was
impacted by local farmers blockade during the second quarter of 2022.
[[Image Removed: gte-20220630_g6.jpg]]
DD&A Expenses
Three Months
Three Months Ended June 30, Ended March 31, Six Months Ended June 30,
2022 2021 2022 2022 2021
DD&A Expenses,
thousands of U.S.
Dollars $ 42,216 $ 28,927 $ 40,963 $ 83,179 $ 60,245
DD&A Expenses, U.S. 20.31 17.23 20.02 20.17 17.20
Dollars per bbl
DD&A expenses for the three and six months ended June 30, 2022 , increased 46%
and 38% or $3.08 and $2.97 per bbl due to increased production and higher costs
in the depletable base compared to the corresponding periods of 2021.
For the three months ended June 30, 2022 , DD&A expenses increased 3% when
compared to the prior quarter due to higher production in the current quarter.
On a per bbl basis, DD&A expenses increased by $0.29 when compared to the prior
quarter due to higher costs in the depletable base.
G&A Expenses
25--------------------------------------------------------------------------------
Three Months
Ended March
Three Months Ended June 30, 31, Six Months Ended June 30,
(Thousands of U.S.
Dollars) 2022 2021 % Change 2022 2022 2021 % Change
G&A Expenses Before
Stock-Based Compensation $ 7,847 $ 7,133 10 $ 7,779 $ 15,626 $ 13,950 12
G&A Stock-Based
Compensation Expense 1,989 1,873 6 4,557 6,546 5,544 18
G&A Expenses, Including
Stock-Based Compensation $ 9,836 $ 9,006 9 $ 12,336 $ 22,172 $ 19,494 14
(U.S. Dollars Per bbl
Sales Volumes NAR)
G&A Expenses Before
Stock-Based Compensation $ 3.77 $ 4.25 (11) $ 3.80 $ 3.79 $ 3.98 (5)
G&A Stock-Based
Compensation Expense 0.96 1.12 (14) 2.23 1.59 1.58 1
G&A Expenses, Including
Stock-Based Compensation $ 4.73 $ 5.37 (12) $ 6.03 $ 5.38 $ 5.56 (3)
For the three and six months ended June 30, 2022 , G&A expenses before
stock-based compensation increased by 10% to $7.8 million and 12% to $15.6
million , respectively, primarily due to higher costs for special projects and
increase in travel expenses compared to corresponding periods of 2021. On a per
bbl basis, G&A expenses before stock-based compensation decreased by $0.48 and
$0.19 per bbl to $3.77 and $3.79 per bbl, respectively, primarily due higher
sales volumes in 2022 compared to the corresponding periods of 2021. When
compared to prior quarter, G&A expenses before stock-based compensation and on
per bbl basis were comparable.
G&A expenses after stock-based compensation for the three and six months ended
June 30, 2022 , increased by 9% per bbl and 14% per bbl respectively, due to
higher share price compared to the corresponding periods of 2021. On a per bbl
basis, G&A expenses after stock-based compensation decreased by $0.64 and $0.18
per bbl, respectively, compared to the corresponding periods of 2021, mainly due
to higher sales volumes in 2022. Compared to prior quarter, G&A expenses after
stock-based compensation decreased by 20% or $1.30 on a per bbl basis, due to
lower stock-based compensation resulting from a lower share price in the second
quarter of 2022.
26--------------------------------------------------------------------------------
[[Image Removed: gte-20220630_g7.jpg]] Foreign Exchange Gains and Losses For the three and six months endedJune 30, 2022 , we had a$2.7 million loss and$1.0 million gain, respectively, on foreign exchange compared to a$0.1 million and$13.2 million loss, respectively, for the corresponding periods of 2021. Accounts receivable, taxes receivable, deferred income taxes, accounts payable, and prepaid equity forward ("PEF") are considered monetary items and require translation from local currency toU.S. dollar functional currency at each balance sheet date. This translation was the primary source of the foreign exchange gains and losses in the periods. The following table presents the change in theU.S. dollar against the Colombian peso and Canadian dollar for the three and six months endedJune 30, 2022 , and 2021: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021
Change in the
strengthened by strengthened by
the Colombian peso 10% 1% 4% 9%
Change in the U.S. dollar against strengthened by weakened by strengthened by weakened by
the Canadian dollar 3% 1% 2% 3%
Financial Instrument Gains and Losses
The following table presents the nature of our derivative and other financial instruments gains and losses for the three and six months endedJune 30, 2022 , and 2021:
27
--------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
(Thousands of U.S. Dollars) 2022 2021 2022 2021
Commodity price derivatives loss
- 22 - 88
Derivative instruments loss
Unrealized PetroTal investment loss (gain) $ -$ 2,614 $ -$ (3,861) Loss on sale of PetroTal shares - - - 5,070 Other financial instruments loss $ -$ 2,614 $ -$ 1,209 Income Tax Expense Three Months Ended June 30, Six Months Ended June 30, (Thousands of U.S. Dollars) 2022 2021 2022 2021 Income (loss) before income tax$ 91,638 $ (8,438)
Current income tax expense$ 25,425 $ (14)$ 46,252 $ (14) Deferred income tax expense 13,241 9,203 31,954 17,854 Total income tax expense$ 38,666 $ 9,189 $ 78,206 $ 17,840 Effective tax rate 42 % (109) % 54 % (48) % Current income tax expense was$46.3 million for the six months endedJune 30, 2022 , compared to a small recovery in the corresponding period in 2021, primarily due to an increase in taxable income. The deferred income tax expense for the six months endedJune 30, 2022 , was also the result of tax depreciation being higher than accounting depreciation and the use of tax losses to offset taxable income inColombia . The deferred income tax expense in the comparative period of 2021 resulted from excess tax depreciation compared with accounting depreciation and the use of tax losses to offset taxable income inColombia . For the six months endedJune 30, 2022 , the difference between the effective tax rate of 54% and the 35% Colombian tax rate was primarily due to$26.6 million of hedging loss and$24.3 million of financing cost related to senior notes, and$21.5 million of corporate costs, which were incurred in a jurisdictions where no tax benefit is recognized. For the six months endedJune 30, 2021 , the difference between the effective tax rate of (48)% and the 31% Colombian tax rate was primarily due to$44.9 million hedging loss,$27.7 million financing cost related to Senior Notes and foreign exchange loss, which were incurred in a jurisdictions where no tax benefit is recognized. These were partially offset by a decrease in valuation allowance. 28
--------------------------------------------------------------------------------
© Edgar Online, source
