Filed
Pursuant to
Rule
424 (b) (3)
File
No. 333-140171
102,133,821
shares of common stock
This
prospectus relates to the offering by the selling stockholders of Gran Tierra
Energy Inc. of up to 102,133,821
shares
of our common stock, par value $0.001 per share. These shares of common stock
include (1) up to 31,583,847 shares of common stock issued or issuable to
selling stockholders upon exercise of warrants, and (2) 18,730,156 shares of
common stock issued or issuable to selling stockholders upon exchange of
exchangeable shares of Gran Tierra Goldstrike, Inc., an indirect subsidiary
of
Gran Tierra Energy Inc. The shares of common stock, warrants and exchangeable
shares were issued in a series of private offerings, and are being registered
to
satisfy registration rights with respect to most of the shares.
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 June 4, 2008, the
closing price of the common stock was $5.94 per share (US dollars) on the
American Stock Exchange and $5.96 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 3 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 June 5, 2008
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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1
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Risk
Factors
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3
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Special
Note Regarding Forward-Looking Statements
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16
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Dividend
Policy
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16
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Use
Of Proceeds
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16
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Price
Range Of Common Stock
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17
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Selected
Financial Data
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18
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Management’s
Discussion And Analysis Of Financial Condition And Results Of
Operations
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19
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Business
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45
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Management
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62
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Principal
And Selling Stockholders
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77
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Certain
Relationships And Related Transactions
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118
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Description
Of Capital Stock
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120
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Plan
Of Distribution
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124
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Legal
Matters
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126
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Experts
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126
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Where
You Can Find Additional Information
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126
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Index
to Financial Statements
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F-1
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PROSPECTUS
SUMMARY
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
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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.
1
The
Offering
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Common
stock currently outstanding (1)
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106,317,127 shares
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Common
stock offered by the selling stockholders (2)
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102,133,821
shares
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Common
stock outstanding after the offering (3)
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129,168,679 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
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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 May 15, 2008 and includes 11,351,586 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
22,851,552 shares
of common stock underlying warrants, and 11,351,586 shares of common
stock
underlying exchangeable shares, issued to the selling
stockholders.
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(3)
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Assumes
the full exercise of warrants to purchase an aggregate of
22,851,552 shares
of common stock held by the selling stockholders, and full exchange
of
exchangeable shares in exchange for an aggregate of 11,351,586 shares
of
common stock, in each case held by the selling stockholders as of
May
15,
2008.
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2
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
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
March 31, 2008 is $11.8 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.
3
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.
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.
4
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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expand
our systems effectively or efficiently or in a timely
manner;
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allocate
our human resources optimally;
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identify
and hire qualified employees or retain valued employees;
or
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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.
5
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
Have a Material Weakness In Our Internal Control Over Financial Reporting,
and
This Material Weakness Creates a Reasonable Possibility That a Material
Misstatement of Our Interim orAnnual Financial Statements Will Not Be Prevented
or Detected in a Timely Manner.
As
a
publicly-traded company, we must maintain disclosure controls and procedures
and
internal control over financial reporting. Our management determined that we
have a material weakness in our internal control over financial reporting as
of
December 31, 2007, relating to the accounting for changes in our accounts
payable and accrued liability balances in our statements of cash flow. As a
result of this material weaknesses in internal control over financial reporting,
material misstatements existed in our statements of cash flow for the years
ended December 31, 2007 and 2006, and in our interim financial statements in
2007, which required is to have to restate our financial statements for the
years ended December 31, 2007 and 2006, and in our interim financial statements
in 2007, to correct the misstatements in our stateements of cash flows for
those
periods. To improve and to maintain the effectiveness of our internal control
over financial reporting and disclosure controls and procedures, significant
resources and management oversight may be required. 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. If we are unable to remediate the material
weakness, or in the future report one or more additional material weaknesses,
there is a possibility that this could result in a restatement of our financial
statements or impact our ability to accurately report financial information
on a
timely basis, which could adversely affect our stock price. Further, the
presence of one or more material weaknesses could cause us to not be able to
timely file our periodic reports with the Securities and Exchange Commission,
which could also result in law suits or diversion of management's attention
to
our business.
We
Must Maintain Effective Registration Statements For All of Our Private
Placements of Our Common Stock, and the Restatement of Our Financial Statements
Will Require Us to Amend These Registration
Statements.
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. As a result of our restatement of our
financial statements, we will be required to amend all three registration
statements. Amending and keeping these registration statements effective is
costly and diverts management’s attention from running our business.
6
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.
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.
7
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.
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.
8
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.
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.
9
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.
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 three
regions of Colombia - in the Middle Magdalena, Llanos 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 March and
April of 2008, sections of one of the Ecopetrol pipelines were blown up by
guerillas, which temporarily reduced our deliveries to Ecopetrol in the first
quarter of 2008. Ecopetrol has been able to restore deliveries within one to
two
weeks of these attacks and currently there are no interruptions to our
deliveries.
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.
11
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.
12
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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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 1, 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.
13
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.
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;
|
|
·
|
announcements
of new acquisitions, reserve discoveries or other business initiatives
by
our competitors;
|
|
·
|
fluctuations
in revenue from our oil and natural gas business as new reserves
come to
market;
|
|
·
|
changes
in the market for oil and natural gas commodities and/or in the capital
markets generally;
|
|
·
|
changes
in the demand for oil and natural gas, including changes resulting
from
the introduction or expansion of alternative fuels;
and
|
|
·
|
changes
in the social, political and/or legal climate in the regions in which
we
will operate.
|
In
addition, the market price of our common stock could be subject to wide
fluctuations in response to:
|
·
|
quarterly
variations in our revenues and operating
expenses;
|
|
·
|
changes
in the valuation of similarly situated companies, both in our industry
and
in other industries;
|
|
·
|
changes
in analysts’ estimates affecting our company, our competitors and/or our
industry;
|
|
·
|
changes
in the accounting methods used in or otherwise affecting our
industry;
|
|
·
|
additions
and departures of key personnel;
|
14
|
·
|
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.
15
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.
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 $34,372,809 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.
16
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 May
15, 2008, there were approximately 196 holders of record of shares of our common
stock (including holders of exchangeable shares).
On
June
4,
2008,
the last reported sales price of our shares on the AMEX was $5.94.
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 June 4,
2008)
|
$
|
7.00
|
$
|
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
|
$
|
1.85
|
$
|
1.08
|
|||
|
Third
Quarter 2006
|
$
|
3.70
|
$
|
1.45
|
|||
|
Second
Quarter 2006
|
$
|
5.12
|
$
|
2.57
|
|||
|
First
Quarter 2006
|
$
|
6.06
|
$
|
2.94
|
|||
As
of May
15,
2008,
there were 106,317,127 shares
of
common stock issued and outstanding, which number includes 11,351,586
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
|
||||||||
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.
17
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 financial statements included in this prospectus.
All dollar amounts are in U.S. dollars.
The
selected financial data set forth below are derived from our financial
statements. The statements of operations data for the years ended December
31,
2007 and 2006, and for
the
period of incorporation, which was January 26, 2005, to December 31,
2005,
and the
balance sheet data as of December 31, 2007 and 2006, are derived from our
audited financial statements included elsewhere in this prospectus. The
statements of operations data for the three months ended March 31, 2007 and
2006
and the balance sheet data as of March 31, 2007, are derived from our unaudited
financial statements included elsewhere in this prospectus. The balance sheet
data as of December 31, 2005, are derived from our audited financial statements
not included in this prospectus. The historical results are not necessarily
indicative of results to be expected in any future period.
|
Period
Ended December 31,
|
Three
Months
Ended
March 31,
|
|||||||||||||||
|
2007
|
2006
|
2005
|
2008
|
2007
|
||||||||||||
|
Statement
of Operations Data
|
||||||||||||||||
|
Revenues
and other income
|
||||||||||||||||
|
Oil
sales
|
$
|
31,808
|
$
|
11,646
|
$
|
946
|
$
|
20,749
|
$
|
4,276
|
||||||
|
Natural
gas sales
|
45
|
75
|
113
|
-
|
48
|
|||||||||||
|
Interest
|
426
|
352
|
—
|
70
|
193
|
|||||||||||
|
Total
revenues
|
32,278
|
12,073
|
1,059
|
20,819
|
4,517
|
|||||||||||
|
Expenses
|
||||||||||||||||
|
Operating
|
10,474
|
4,233,470
|
395
|
2,527
|
2,181
|
|||||||||||
|
Depletion,
depreciation and accretion
|
9,415
|
4,088,437
|
462
|
3,064
|
2,324
|
|||||||||||
|
General
and administrative
|
10,232
|
6,998,804
|
2,482
|
4,133
|
1,939
|
|||||||||||
|
Liquidated
damages
|
7,367
|
1,527,988
|
—
|
-
|
4,132
|
|||||||||||
|
Derivative
financial instruments
|
3,040
|
—
|
—
|
1,184
|
657
|
|||||||||||
|
Foreign
exchange (gain) loss
|
(77
|
)
|
370,538
|
(31
|
)
|
14
|
232
|
|||||||||
|
Total
expenses
|
40,451
|
17,219,237
|
3,308
|
10,922
|
11,465
|
|||||||||||
|
Loss
before income tax
|
(8,172
|
)
|
(5,146
|
)
|
(2,249
|
)
|
9,897
|
(6,948
|
)
|
|||||||
|
Income
tax
|
(295
|
)
|
(677
|
)
|
29
|
(5,221
|
)
|
298
|
||||||||
|
Net
loss
|
$
|
(8,467
|
)
|
$
|
(5,824
|
)
|
$
|
(2,220
|
)
|
$
|
4,676
|
$
|
(6,650
|
)
|
||
|
Net
loss per common share — basic
|
$
|
(0.09
|
)
|
$
|
(0.08
|
)
|
$
|
(0.16
|
)
|
$
|
0.05
|
$
|
(0.07
|
)
|
||
|
Net
loss per common share — diluted
|
$
|
(0.09
|
)
|
$
|
(0.08
|
)
|
$
|
(0.16
|
)
|
$
|
0.04
|
$
|
(0.07
|
)
|
||
|
Statement
of Cash Flows Data
|
(As
Restated)(1)
|
(As
Restated)(1)
|
(As
Restated)(1)
|
|||||||||||||
|
Operating
activities
|
$
|
8,761
|
$
|
2,010
|
$
|
(1,877
|
)
|
$
|
9,153
|
$
|
(2,908
|
)
|
||||
|
Investing
activities
|
(15,393
|
)
|
(48,207
|
)
|
(9,108
|
)
|
$
|
(6,538
|
)
|
$
|
(8,889
|
)
|
||||
|
Financing
activities
|
719
|
68,076
|
13,206
|
$
|
(5,220
|
)
|
$
|
(1,010
|
)
|
|||||||
|
(Decrease)
Increase in cash
|
(5,912
|
)
|
21,879
|
2,221
|
||||||||||||
|
December
31,
|
March
31,
|
|||||||||||||||
|
Balance
Sheet Data
|
2007
|
|
2006
|
|
2005
|
|
2008
|
|
2007
|
|||||||
|
Cash
and cash equivalents
|
$
|
18,189
|
$
|
24,101
|
$
|
2,221
|
$
|
26,024
|
$
|
18,139
|
||||||
|
Working
capital (including cash)
|
8,058
|
14,541
|
2,765
|
14,454
|
8,058
|
|||||||||||
|
Oil
and gas properties
|
63,202
|
56,093
|
7,887
|
69,229
|
63,202
|
|||||||||||
|
Deferred
tax asset
|
2,058
|
444
|
—
|
987
|
220
|
|||||||||||
|
Total
assets
|
112,797
|
105,537
|
12,371
|
139,051
|
112,797
|
|||||||||||
|
Deferred
tax liability
|
(11,675
|
)
|
(9,876
|
)
|
—
|
736
|
1,108
|
|||||||||
|
Other
long-term liabilities
|
(1,986
|
)
|
(634
|
)
|
(68
|
)
|
131
|
132
|
||||||||
|
Shareholders’
equity
|
(76,792
|
)
|
(76,195
|
)
|
(11,039
|
)
|
87,280
|
76,792
|
||||||||
(1)
As
discussed in Note 13 to our consolidated financial statements, cash flows from
operating activities and cash flows from investing activities has been restated
as a result of a misclassification of accounts payable and accrued liabilities
between the two categories.
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.
18
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
under the caption “Risk Factors” earlier in this prospectus.
Overview
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).
|
19
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.
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.
20
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, one of the Ecopetrol pipelines was blown up by guerillas, and we estimate
at present that we will have to reduce our current production deliveries to
Ecopetrol for approximately one week, perhaps longer, 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.
Overview
of the First Quarter of 2008
The
following summarizes our performance for the three months ended March 31, 2008
compared to the three months ended March 31, 2007:
|
•
|
Net
income and basic income per share - increased to $4.7 million ($0.05
basic
income per share) for the three months ended March 31, 2008 from
a net
loss of $6.7 million ($0.07 basic loss per share) in the first quarter
of
2007.
|
|
•
|
Production,
net of royalties, increased 146% to 2,843 barrels per day for the
first
quarter of 2008.
|
|
•
|
Combined
realized price for crude oil and natural gas liquids (“NGLs”) increased
95% for the first quarter of 2008.
|
|
•
|
Operating
costs per barrel of equivalent oil (“Boe”) decreased 53% for the first
quarter of 2008.
|
Net
income for the three months ended March 31, 2008 increased to $4.7 million
or
$0.05 per share ($0.04 per share diluted) from a loss of $6.7 million, or $0.07
per share in same period of 2007. The primary reason for the increase is new
production from the recent oil discoveries in Colombia and a higher West Texas
Intermediate price (“WTI”), upon which the price our customers pay us for oil is
based, partially offset by higher operating expense, DD&A, G&A and
income taxes reflecting our increased level of activities. Liquidated damages
of
$4.1 million contributed to the loss for the first quarter of 2007.
Argentina’s
first quarter 2008 operating segment loss increased 24% to $0.7 million from
a
loss of $0.5 million for the same period in 2007. This was primarily due to
a
decrease in realized crude oil price resulting from the application of a new
Argentine withholding tax on oil exports implemented in the fourth quarter
of
2007, as discussed further below. Also contributing to the increased loss were
higher stock based compensation expense and consulting fees associated with
operations.
Colombia’s
first quarter 2008 operating segment income is $14.3 million, compared to an
operating segment loss of $0.4 million for the same period in 2007. Our
Colombian operating results for 2008 are principally impacted by new oil
production resulting from the success of our 2007 exploration program in
Colombia, undertaken in the first half of 2007, where we made two field
discoveries, Costayaco in the Chaza block and Juanambu in the Guayuyaco block.
The exploration wells for these discoveries were brought into production in
the
third quarter of 2007 and have significantly increased our daily production.
In
Colombia, first quarter 2008 average daily production increased by 1,834 barrels
per day to 2,366 barrels per day from 532 barrels per day in the first quarter
of 2007 mainly as a result of these wells. The average WTI for the first quarter
of 2008 was higher than the average WTI in the same quarter in 2007 which also
contributed to the significant increase in our revenues.
In
2008,
we intend to focus on developing our 2007 oil discoveries to increase our
production capacity and reserve base, through development drilling and expansion
of production and transportation infrastructure. In addition, we intend to
undertake additional oil exploration efforts to further define the potential
of
our acreage in Colombia, Argentina and Peru. Gran Tierra Energy has an active
development drilling and exploration drilling program planned 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 successfully tested
for oil
in February 2008;
|
|
-
|
Costayaco-3
which was drilled in the first quarter of 2008 and successfully tested
for
oil production in April 2008;
|
|
-
|
Costayaco
- 4 which commenced drilling in March
2008;
|
|
-
|
Costayaco
- 5 to 7 to be drilled during the remainder of the
year;
|
|
-
|
Juanambu
- 2 planned for drilling in the second and third quarters of 2008;
and,
|
| - |
Three
oil exploration wells, two in Colombia and one in
Argentina.
|
21
Restatement
of Prior Year Financial Statements
Subsequent
to the release of financial statements for the year ended December 31, 2007
we
determined that $3.7 million of changes in accounts payable and accrued
liabilities, initially attributed to net cash provided by (used in) operating
activities should have been attributed to oil and gas property expenditures
and
net cash used in investing activities. Accordingly, line items in the statements
of cash flows for the three month period ended March 31, 2007 have been
restated.
Net
changes in non-cash working capital related to accounts payable and accrued
liabilities for the three month period ended March 31, 2007 have been restated
to an increase of $2.5 million from an increase of $6.2 million, and net cash
provided by (used in) operating activities has been restated to a use of $2.9
million from $0.8 million cash flow provided by operating activities. The change
in non-cash working capital related to capital additions has been restated
to a
decrease of $3.8 million from a decrease of $7.5 million, cash used for oil
and
gas property expenditures (including the change in non-cash working capital
related to capital additions) has been restated to $8.9 million from $12.6
million and net cash used in investing activities has been restated to $8.9
million from $12.6 million.
The
preceding restatement has no effect on the net increase or decrease in cash
or
cash equivalents for any period.
Results
of Operations for the Three Months ended March 31, 2008 and
2007
Revenue
and Other Income
A
summary
of selected production, revenue and price information for the three month
periods ended March 31, 2008 and 2007 is presented in the following table:
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
|
|
2008
|
|
2007
|
|
Change
from Prior Period
|
|
|||||||||||||||||||||
|
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
||||||||||
|
Production,
net of royalties (2)
|
||||||||||||||||||||||||||||
|
Oil
and NGLs (Bbls)
|
43,345
|
215,337
|
258,682
|
56,250
|
47,880
|
104,130
|
(23
|
)%
|
350
|
%
|
148
|
%
|
||||||||||||||||
|
Gas
(Mcf)
|
808
|
-
|
808
|
18,155
|
-
|
18,155
|
(96
|
)%
|
-
|
(96
|
)%
|
|||||||||||||||||
|
Oil,
Gas and NGLs (Boe) (1)
|
43,385
|
215,337
|
258,722
|
57,158
|
47,880
|
105,038
|
(24
|
)%
|
350
|
%
|
146
|
%
|
||||||||||||||||
|
Revenue
and other income (000’s except average price
amounts)
|
||||||||||||||||||||||||||||
|
Oil
and NGLs (Bbls)
|
$
|
1,384
|
$
|
19,365
|
$
|
20,749
|
$
|
2,088
|
$
|
2,188
|
$
|
4,276
|
(34
|
)%
|
785
|
%
|
385
|
%
|
||||||||||
|
Gas
|
-
|
-
|
-
|
48
|
-
|
48
|
(100
|
)%
|
-
|
(100
|
)%
|
|||||||||||||||||
|
Interest
(excluding Corporate)
|
5
|
62
|
67
|
-
|
94
|
94
|
100
|
%
|
(34
|
)%
|
(29
|
)%
|
||||||||||||||||
|
|
$
|
1,389
|
$
|
19,427
|
$
|
20,816
|
$
|
2,136
|
$
|
2,282
|
$
|
4,418
|
(35
|
)%
|
751
|
%
|
371
|
%
|
||||||||||
|
Other
- Corporate
|
3
|
99
|
(97
|
)%
|
||||||||||||||||||||||||
|
|
$
|
20,819
|
$
|
4,517
|
361
|
%
|
||||||||||||||||||||||
|
Average
Prices
|
||||||||||||||||||||||||||||
|
Oil
and NGLs (Per Bbl)
|
$
|
31.94
|
$
|
89.93
|
$
|
80.21
|
$
|
37.13
|
$
|
45.69
|
$
|
41.06
|
(14
|
)%
|
97
|
%
|
95
|
%
|
||||||||||
|
Gas
(Per Mcf)
|
$
|
0.41
|
-
|
$
|
0.41
|
$
|
2.65
|
-
|
$
|
2.65
|
(84
|
)%
|
--
|
(84
|
)%
|
|||||||||||||
(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
General
Crude
oil
and NGL production for the three months ended March 31, 2008 increased 148%
to
258,682 barrels (2,842 barrels per day (“bopd”) from 104,130 barrels (1,157
bopd) for the three months ended March 31, 2007. The average price received
per
barrel of oil increased 95% to $80.21 per barrel for 2008 from $41.06 per barrel
in 2007. As a result, revenues and other income for the three months ended
March
31, 2008 increased 361% to $20.8 million compared to $4.5 million for the three
months ended March 31, 2007. The increase in production is due primarily to
the
inclusion of production from the two new discovery wells at Costayaco and
Juanambu in Colombia which commenced producing in the third quarter of 2007.
Natural gas production in 2008 is used for operating power generation with
any
excess production sold in the market.
Argentina
In
Argentina, crude oil and NGL production after 12% royalties for the three months
ended March 31, 2008 decreased 23% to 43,345 barrels (476 bopd) compared to
56,250 barrels (625 bopd) for 2007. Production for the three months ended March
31, 2008 includes 16,698 barrels (183 bopd) from Palmar Largo, 17,042 barrels
(187 bopd) from El Vinalar and 9,605 barrels (106 bopd) from Chivil. For the
three months ended March 31, 2007, Argentina’s crude oil production after 12%
royalties was 56,250 barrels (625 bopd), including 25,003 barrels (278 bopd)
from Palmar Largo, 19,136 barrels (213 bopd) from El Vinalar, 11,498 barrels
(128 bopd) from Chivil and 613 barrels (7 bopd) of NGL’s from Nacatimbay.
Production in the first quarter of 2008 has decreased due to poor road
conditions which delayed deliveries to Refineria del Norte S.A. As a result,
oil
inventories as at March 31, 2008 are higher compared to those at December 31,
2007. We expect that deliveries will return to normal levels in the second
quarter of 2008.
In
Argentina, the average price for crude oil and NGLs for the three months ended
March 31, 2008, after deducting royalties at an average royalty rate of 12%
of
production revenue, and after deducting turnover taxes, decreased 14% to $31.94
per barrel as compared to $37.13 per barrel for the same quarter of
2007.
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. In April 2008, we completed negotiations with Refiner S.A to increase
the price received for all deliveries from November 18, 2007 to March 31, 2008
to $38 per barrel. The additional $5 per barrel will be recorded as revenue
in
the second quarter of 2008. Along with most other oil producers in Argentina,
we
are continuing deliveries to the refinery and are negotiating a price for
deliveries commencing April 1, 2008. 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.
In
Argentina, revenues for the three months ended March 31, 2008, after deducting
royalties at an average royalty rate of 12% of production revenue, and after
deducting turnover taxes, decreased 34% to $1.4 million for oil and NGLs as
compared to $2.1 million for the same quarter of 2007, reflecting the impact
of
higher export taxes combined with lower production, as explained
above.
Colombia
In
Colombia, crude oil and NGL production, after government royalties ranging
from
8% to 20% and a third party 2% overriding royalty, for the three months ended
March 31, 2008 increased 350% to 215,337 barrels (2,366 bopd) as compared to
47,880 barrels (532 bopd) for the three months ended March 31, 2007. This
increased production is primarily due to Costayaco production of 146,630 barrels
(1,611 bopd) and Juanambu production of 34,910 barrels (384 bopd). The increase
was partially offset by declines in production in other areas including 20,327
barrels (223 bopd) as compared to 28,695 barrels (319 bopd) in the first quarter
of 2007 from the Santana block, and 13,470 barrels (148 bopd) as compared to
19,185 (213 bopd) in the first quarter of 2007 from the Guayuyaco block
(excluding the Juanambu area).
In
Colombia, the average price for crude oil and NGLs, net of royalties, for the
three months ended March 31, 2008 increased 97% to $89.93 per barrel as compared
to $45.69 per barrel for the same period in 2007. The increase is due to the
impact of a higher WTI price in the three month period in 2008 as compared
to
the same period in 2007.
In
Colombia, crude oil and NGL revenue, net of royalties, for the three months
ended March 31, 2008 increased 785% to $19.4 million as compared to $2.2 million
for the same period in 2007 as a result of increased production and higher
prices.
23
In
March
and April of 2008, sections of one of the Ecopetrol pipelines were blown up
by
guerillas, which temporarily reduced our deliveries to Ecopetrol in the first
quarter of 2008, resulting in higher than average Colombia crude oil inventories
at March 31, 2008. Ecopetrol has been able to restore deliveries within one
to
two weeks of these attacks and currently there are no interruptions to our
deliveries.
Interest
income earned on our cash deposits for the three months ended March 31, 2008
decreased 64% to $0.1 million for the three months ended March 31, 2008 from
$0.2 million for the same period in 2007. The decrease is due primarily to
lower
interest rates applied to deposit balances in the first quarter of 2008 as
compared to the same period in 2007.
Operating
Expenses
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
|
|
2008
|
|
2007
|
|
Change
from Prior Period
|
|
|||||||||||||||||||||
|
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
||||||||||
|
Operating
expense (000’s except per Boe amounts)
|
||||||||||||||||||||||||||||
|
Operating
expense
|
$
|
902
|
$
|
1,610
|
$
|
2,512
|
$
|
1,820
|
$
|
361
|
$
|
2,181
|
(50
|
)%
|
346
|
%
|
15
|
%
|
||||||||||
|
Other
- Corporate - Peru Operations
|
15
|
-
|
100
|
%
|
||||||||||||||||||||||||
|
|
$
|
2,527
|
$
|
2,181
|
16
|
%
|
||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Operating
expense per Boe
|
$
|
20.79
|
$
|
7.48
|
$
|
9.77
|
$
|
31.84
|
$
|
7.54
|
$
|
20.76
|
(35
|
)%
|
1
|
%
|
(53
|
)%
|
||||||||||
For
the
three months ended March 31, 2008, operating expenses increased 16% to $2.5
million ($9.77 per Boe) compared to $2.2 million ($20.76 per Boe) in 2007.
The
increase in operating expenses was primarily due to the increase in production
resulting from the new discovery wells in Colombia.
In
Argentina, operating expenses for the three months ended March 31, 2008
decreased 50% to $0.9 million ($20.79 per Boe) as compared to $1.8 million
($31.84 per Boe) for the same period in 2007. The operating costs for the three
months ended March 31, 2008 are lower than in the same period of 2007. Workover
expenses included in operating expenses undertaken in the first quarter of
2007
were $10.42 per Boe as compared to $0.21 per BOE in the first quarter of 2008.
The decrease in workover expenses in the first quarter of 2008 was caused by
adverse weather conditions.
In
Colombia, operating expenses increased 346% to $1.6 million for the three months
ended March 31, 2008 ($7.48 per Boe) as compared to $0.4 million for the same
period in 2007 ($7.54 per Boe). The increased operating expenses resulted from
the additional operations undertaken for the new discovery wells that came
on
production in the third quarter of 2007 and the increased cost associated with
trucking oil from Costayaco to our pipeline. Operating costs include trucking
costs of $0.74 per Boe in the first quarter of 2008 for Costayaco production.
This cost is expected to decrease once pipeline and related facilities
construction for Costayaco are completed in the third quarter of 2008. The
first
quarter 2008 operating costs included $0.89 per Boe ($4.11 per Boe for the
same
period in 2007) of workover expense mainly carried out in the Guayuyaco
block.
Depletion,
Depreciation and Accretion (“DD&A”)
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
|
|
2008
|
|
2007
|
|
Change
from Prior Period
|
|
|||||||||||||||||||||
|
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
|
Argentina
|
|
Colombia
|
|
Total
|
||||||||||
|
DD&A
(000’s except per Boe
amounts)
|
||||||||||||||||||||||||||||
|
DD&A
|
$
|
567
|
$
|
2,467
|
$
|
3,034
|
$
|
475
|
$
|
1,824
|
$
|
2,299
|
19
|
%
|
35
|
%
|
32
|
%
|
||||||||||
|
Other
- Corporate
|
30
|
25
|
20
|
%
|
||||||||||||||||||||||||
|
|
$
|
3,064
|
$
|
2,324
|
32
|
%
|
||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
DD&A
per Boe
|
$
|
13.06
|
$
|
11.45
|
$
|
11.84
|
$
|
8.30
|
$
|
38.10
|
$
|
22.13
|
57
|
%
|
(70
|
)%
|
(46
|
)%
|
||||||||||
24
DD&A
for the three months ended March 31, 2008 increased 32% to $3.1 million from
$2.3 million for the same period in 2007.
For
Argentina, DD&A increased 19% to $0.6 million from $0.5 million for the same
period in 2007. The increase in Argentina is mainly due to decreased proved
reserves, partially offset by a decreasing proved depletable cost base,
resulting in a 57% increase of the DD&A rate to $13.06 per Boe for the first
quarter of 2008 from $8.30 per Boe for the same quarter in 2007. This decreasing
proved depletable cost base is a result of a reduced capital expenditure program
in Argentina.
For
Colombia, DD&A increased 35% for the three months ended March 31, 2008 to
$2.5 million from $1.8 million for the same period in 2007. The increase in
Colombia is primarily due to the increase in production over the prior year.
Although our Colombian proved reserves increased significantly in 2007, Gran
Tierra Energy also invested much of its 2007 and first quarter 2008 capital
spending on the Colombia development program. Our Colombian first quarter 2008
depletion rate is $11.45 per Boe as compared to $38.10 per Boe for the same
period in 2007. The first quarter of 2007 rate reflects a high depletable cost
base amortized over a reserve base that did not yet reflect the third quarter
of
2007 reserve additions resulting from our two new discoveries.
General
and Administrative (“G&A”)
|
|
Three
Months Ended March 31,
|
|
|
|
||||||||||||||||||||||||
|
|
2008
|
2007
|
Change
from Prior Period
|
|||||||||||||||||||||||||
|
|
Argentina
|
Colombia
|
Total
|
Argentina
|
Colombia
|
Total
|
Argentina
|
Colombia
|
Total
|
|||||||||||||||||||
|
G&A
(000’s except per Boe amounts)
|
||||||||||||||||||||||||||||
|
G&A
|
$
|
570
|
$
|
1,022
|
$
|
1,592
|
$
|
322
|
$
|
409
|
$
|
731
|
77
|
%
|
150
|
%
|
118
|
%
|
||||||||||
|
Other
- Corporate
|
$
|
2,
541
|
$
|
1,208
|
110
|
%
|
||||||||||||||||||||||
|
|
$
|
4,133
|
$
|
1,939
|
113
|
%
|
||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
G&A
per Boe
|
$
|
13.13
|
$
|
4.75
|
$
|
15.98
|
$
|
5.64
|
$
|
8.53
|
$
|
18.46
|
133
|
%
|
(44
|
)%
|
(13
|
)%
|
||||||||||
General
and administrative expenses for the three months ended March 31, 2008 increased
113% to $4.1 million from $1.9 million for the same period in 2007. The increase
in G&A was due to corporate stewardship costs including Sarbanes Oxley
compliance, securities exchange listing fees, securities registration related
costs and increased stock-based compensation due to increased option grants.
Argentina’s G&A cost for the three months ended March 31, 2008 increased 77%
to $0.6 million from $0.3 million for the same period in 2007 as a result of
increased stock-based compensation expense for Argentine staff and increased
consulting expenses. Colombia’s G&A for the three months ended March 31,
2008 increased 150% to $1.0 million from $0.4 million for the same period in
2007 mainly due to increased management and administration expenses incurred
to
manage the increased level of development and operating activities resulting
from the successful 2007 exploration activities.
Liquidated
Damages
|
|
Three
Months Ended March 31,
|
|||||||||
|
|
2008
|
2007
|
Change
from Prior Year
|
|||||||
|
Liquidated
damages (000’s)
|
$
|
-
|
$
|
4,132
|
(100
|
)%
|
||||
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 and no additional
liquidated damages were incurred after that time.
25
Financial
Derivative Loss
|
|
Three
Months Ended March 31,
|
||||||
|
Financial
derivative loss (000’s)
|
2008
|
2007
|
|||||
|
Realized
financial derivative loss
|
$
|
491
|
$
|
-
|
|||
|
Unrealized
financial derivative loss
|
693
|
657
|
|||||
|
Financial
derivative loss
|
$
|
1,184
|
$
|
657
|
|||
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 three months ended
March 31, 2008 and March 31, 2007, we recorded a loss of $1.2 million and $0.7
million, respectively, on the valuation of derivative financial
instruments.
Foreign
Exchange Loss
|
|
Three
Months Ended March 31,
|
|||||||||
|
|
2008
|
2007
|
Change
from Prior Period
|
|||||||
|
Foreign
exchange loss (000’s)
|
$
|
14
|
$
|
232
|
(94
|
)%
|
||||
The
foreign exchange loss for the three months ended March 31, 2008 decreased to
$14,000 from $0.2 million for the same period in 2007. The foreign exchange
loss
in 2007 resulted primarily from the increase in the value of the Colombian
peso
as compared to the US dollar.
Income
Tax
|
|
Three
Months Ended March 31,
|
||||||
|
|
2008
|
2007
|
|||||
|
Income
tax expense (recovery) (000’s)
|
$
|
5,221
|
$
|
(298
|
)
|
||
The
income tax expense for the three months ended March 31, 2008 increased to $5.2
million from a recovery of $0.3 million for the same period in 2007. The
Colombia operations generated a net income before tax of $14.3 million for
the
three months ended March 31, 2008, which resulted in a local income tax expense
of $5.5 million. 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.
26
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.
27
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.
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
|
%
|
||||||||||
28
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.
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
|
%
|
||||||||||
29
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.
Liquidated
Damages
|
|
Year
Ended December 31,
|
|||||||||
|
|
2007
|
2006
|
Change
from Prior Year
|
|||||||
|
Liquidated
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,
|
|||||||||
|
|
2007
|
2006
|
Change
from Prior 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.
30
Income
Tax
|
|
Year
Ended December 31,
|
|||||||||
|
|
2007
|
2006
|
Change
from Prior 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.
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 liquidated
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.
31
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.
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.
32
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
|
%
|
||||||||||||
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.
33
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.
Liquidated
Damages
|
|
Year
Ended
December
31, 2006
|
Period
Ended
December
31, 2005
|
Change
from Prior Period
|
|||||||
|
Liquidated
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.
34
Foreign
Exchange Loss
|
|
Year
Ended
December
31, 2006
|
Period
Ended
December
31, 2005
|
Change
from Prior 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, 2006
|
Period
Ended
December
31, 2005
|
Change
from Prior 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
|
%
|
|||||||||||||||||||||||||||||||
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.
35
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
$18.2 million and our current assets (including cash and cash equivalents
balance) less current liabilities were $8.1 million compared to cash and cash
equivalents of $24.1 million and current assets (including cash and cash
equivalents balance) less current liabilities of $14.5 million at December
31,
2006. As of March 31, 2008, our cash and cash equivalents balance was $26.0
million and our current assets (including cash and cash equivalent ) less
current liabilities was $14.5 million. 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
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, and March 31,
2008, 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.
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 $8,761,439 as
compared to $2,010,056 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 68% to
$15,392,705 from $48,206,588 in 2006. During 2007, we expended $15,796,332
(net
of changes in non-cash working capital related to capital expenditures of
$232,822) in oil and gas property expenditures relating to our drilling and
other oilfield activities primarily in Colombia as compared to $10,274,139
(net
of changes in non-cash working capital expenditures of $8,026,375) 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 inflows comprised
$2,010,056 from operating activities and $68,075,856 from financing activities,
offset by cash outflows of $48,206,588 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.
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.
36
Capital
expenditures for the year ended December 31, 2006 were $47,186,098 (net of
changes in non-cash working capital related to capital expenditures of
$8,026,375) 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 $15,976,332 (net of changes in
non-cash working capital related to capital expenditures of $232,822) 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 $7,984,841 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.
First
Quarter 2008
During
the three months ended March 31, 2008, we increased our cash balances by $7.8
million as compared to a decrease in the three months ended March 31, 2007
of
$10.8 million. Net cash provided by operating activities for the three months
ended March 31, 2008 increased to $9.2 million as compared to cash used in
operating activities of $2.9 million for the same period in 2007. The increase
was mainly due to the significant increase in oil revenue offset by increased
operating expenses and higher G&A expenditures. Net cash used in investing
activities for the three months ended March 31, 2008 decreased to $6.5 million
from $8.9 million in the same period in 2007. Net cash used in investing
activities during the first quarter of 2008 included capital expenditures of
$9.0 million relating to our drilling and other oilfield activities primarily
in
Colombia, net of the change in non-cash working capital of $2.5 million related
to capital expenditures, as compared to capital expenditures of $5.1 million,
net of the change in non-cash working capital expenditures of $3.8 million,
for
the first quarter of 2007. Net cash provided by financing activities for the
three months ended March 31, 2008 was $5.2 million as a result of the issuance
of common shares upon exercise of warrants and stock options.
During
the three months ended March 31, 2008, we incurred $9.0 million on capital
projects.
37
In
Argentina, capital expenditures for the three months ended March 31, 2008,
were
$0.4 million. Costs include facilities upgrades in Palmar Largo area,
exploration land lease costs and capitalized G&A including non-cash
stock-based compensation expense.
In
Colombia, capital expenditures for the three months ended March 31, 2008, were
$8.2 million. We completed drilling Costayaco -2 and Costayaco -3 and commenced
drilling Costayaco - 4 for a total cost during the quarter of $6.5 million.
Both
Costayaco - 2 and Costayaco - 3 have been successfully tested for oil production
with long term testing planned in the second and third quarters of 2008.
Additional capital expenditures in the quarter include seismic costs of $0.8
million for a 35 square kilometer 3-D seismic program in the Azar Block, and
a
42 kilometer 2-D seismic program in the Chaza Block, leasehold improvements
of
$0.7 million for new office space in Bogota million and capitalized G&A of
$0.2 million.
In
Peru,
operations in the three months ended March 31, 2008 included continuation 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 the second quarter
of
2008. Expenditures in the first quarter of 2008 were $0.4 million, with
estimated expenditures to complete the work in the remainder of 2008 of $1.0
million.
2008
Plans
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 and debt markets. 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.
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
March 31, 2008, 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.
38
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
|
$
|
-
|
||||||
Our
future lease payments and other contractual obligations at March 31, 2008
were
not substantially different than at December 31, 2007.
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.
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.
39
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.
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 would reduce the ceiling limitation and could result
in a
ceiling test write-down.
40
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.
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.
41
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 123R, 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.
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.
42
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
|
)
|
||||
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.
43
Quantitative
and Qualitative Disclosure About Market Risk
Our
principal market risk relates to oil prices. We have not hedged these risks
in
the past. Essentially 100% of our revenues are from oil sales at prices which
are defined by contract relative to West Texas Intermediate (“WTI”) and adjusted
for transportation and quality, for each month. In Argentina, a further discount
factor which is related to a tax on oil exports establishes a common pricing
mechanism for all oil produced in the country, regardless of its
destination.
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 the WTI price, with a floor of $48.00 and
a
ceiling of $80.00, for a three-year period ending February 2010, 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
March 31, 2008, the value of this costless collar was a loss of $3.3 million.
A
hypothetical 10% increase in WTI price on March 31, 2008 would cause the
loss to
increase by approximately $1.4 million for the quarter, and a hypothetical
10%
decrease in WTI price on March 31, 2008 would cause the loss to decrease
by
approximately $1.3 million for the quarter. This compares to at December
31,
2007, when the value of this costless collar was a loss of $2.6 million,
and a
hypothetical 10% increase in WTI price on December 31, 2007 would cause the
loss
to increase by approximately $1.5 million, and a hypothetical 10% decrease
in
WTI price on December 31, 2007 would cause the loss to decrease by approximately
$1.3 million.
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 crude 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.
44
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.
45
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 for the
quarters ended March 31, 2008 and 2007, and our total assets as of March
31,
2008 and 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.
46
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.
|
|
·
|
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.
47
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.
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.
48
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.
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.
49
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
.
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 the next
step
for resolution will be legal proceedings. Gran Tierra Colombia is awaiting
further action by Ecopetrol in this regard. 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. The estimated value of disputed production is $2,361,188
which possible loss is shared 50% ($1,180,594) 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.
50
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.
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.
51
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.
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.
52
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.
53
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.
54
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.
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.
55
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.
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.
|
56
Oil
and Gas Properties — Peru
We
entered the Peruvian oil and gas industry in 2006 through the award of
two
frontier exploration blocks.
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.
|
57
|
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).
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
|
%
|
||||||||
58
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”.
59
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
|
|||||||||||||||||
60
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
|
|||||||||||||
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.
61
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.
62
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.
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.
63
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.
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.
64
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.
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.
65
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.
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:
66
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
|
67
|
|
|
|
|
|
·
|
Secure
additional sources of financing as required
|
|
|
|
|
|
|
·
|
Assist
our Chief Executive Officer in developing and implementing
an investor
relations strategy
|
|
|
||
|
|
·
|
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:
68
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
|
|
|
·
|
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
|
69
|
|
·
|
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.
70
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.
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.
71
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
|
|||||||||
|
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
|
|||||||||
72
|
(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.
73
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.
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
($193,073)
In addition, the agreement provides for an annual bonus along the
same terms as
described above of Messrs. Coffield, Hart and Wei, as well as the
right to
participate in our company’s stock option plans, without specifying the amount
of criteria used. Mr. Eden’s employment agreement became effective on January 2,
2007 and has an initial term of three years, subject to extension
or earlier
termination and provides for severance payments, in the event he
is terminated
without cause or terminates the agreement for good reason, in the
amount of the
greater of total cash compensation of the remaining term and one
year’s total
cash compensation, with total cash compensation meaning annualized
salary plus
bonus for the prior 12-month period. “Good reason” includes an adverse change in
the Mr. Eden’s position, title, duties or responsibilities, or any failure to
re-elect him to such position (except for termination for “cause”). Mr. Eden’s
employment agreement includes customary indemnity, insurance, non-competition
and confidentiality provisions.
On
January 1, 2007, Mr. Hart resigned his position as Vice President
Finance and
CFO, but remained with the company in an executive capacity as Chief
Strategy
Officer. On February 28, 2007 Mr. Hart resigned as an employee of
the company.
He remained as a director until October 10, 2007.
Outstanding
Equity Awards at Fiscal year -end.
The
following table shows for the fiscal year ended December 31, 2007,
certain
information regarding outstanding equity awards at fiscal year end
for the Named
Executive Officers.
74
The
following table provides information concerning unexercised options
for each
Named Executive Officer outstanding as of December 31, 2007.
|
Name
|
Number
of Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option
Exercise Price
($)
|
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
|
|||||||||||||
|
|
|||||||||||||||||||
|
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.
|
75
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.”
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.
76
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 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, 611-10th 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
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
G. Kirton (10)
|
—
|
*
|
|||||
|
James
R. Hart (11)
|
1,688,889
|
1.69
|
%
|
||||
|
Greywolf
Capital Management LP (12)
|
6,286,001
|
6.08
|
%
|
||||
|
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%
77
|
(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 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.
|
|
(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.
|
78
|
(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 2,123,080 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 829,587 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 April 1, 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
April 1, 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.
|
Selling
Stockholders
The
information in this prospectus with respect to the selling
stockholders combines
information previously presented in three different registration
statements,
containing information as of three different dates. As a result,
set forth below
is this information from each of these registration statements.
For selling
stockholders appearing in more than one table, the information
with respect to
the number of shares being offered by the selling stockholders
is not
duplicative, such that shares being offered by a selling stockholder
in one
table and shares being offered by that same selling stockholder
in another table
reflect, when combined, the total number of shares being offered
by that selling
stockholder.
Shares
Being Offered From the June 2006 Financing
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.
79
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
|
-
|
-
|
|||||||||||
|
Anthony
Jacobs
|
300,000
|
200,000
|
100,000
|
-
|
-
|
|||||||||||
|
Arnold
Schumsky†
|
50,000
|
50,000
|
-
|
-
|
-
|
|||||||||||
|
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
|
*
|
|||||||||||
80
|
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
|
1,595,239
|
404,762
|
-
|
-
|
|||||||||||
|
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
|
*
|
81
|
Don
A. Sanders21†
|
675,000
|
200,000
|
100,000
|
375,000
|
*
|
|||||||||||
|
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
|
500,000
|
-
|
-
|
-
|
|||||||||||
|
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
|
100,001
|
-
|
-
|
-
|
|||||||||||
|
Gary
Friedland
|
13,000
|
13,000
|
-
|
-
|
-
|
|||||||||||
|
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
|
-
|
-
|
82
|
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
|
95,000
|
-
|
-
|
-
|
|||||||||||
|
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
|
-
|
-
|
|||||||||||
|
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 and Francine Friedman†
|
25,001
|
25,001
|
-
|
-
|
-
|
|||||||||||
|
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
|
142,999
|
6,500
|
-
|
-
|
|||||||||||
|
Hudson
Bay Overseas Fund, Ltd.50†
|
50,001
|
47,901
|
2,100
|
-
|
-
|
|||||||||||
|
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
|
1,000,000
|
-
|
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
|
-
|
-
|
83
|
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
|
-
|
-
|
|||||||||||
|
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
|
24,999
|
-
|
-
|
-
|
|||||||||||
|
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
|
30,000
|
-
|
-
|
-
|
|||||||||||
|
Jim
Taylor(63A)**
|
30,000
|
30,000
|
-
|
-
|
-
|
|||||||||||
|
Joe
M. Bailey
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Joel
Stuart†
|
24,999
|
24,999
|
-
|
-
|
-
|
|||||||||||
|
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
|
-
|
-
|
84
|
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
|
30,000
|
-
|
-
|
-
|
|||||||||||
|
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
|
25,500
|
-
|
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
|
*
|
|||||||||||
|
Larry
Martin†
|
75,000
|
50,000
|
25,000
|
-
|
-
|
|||||||||||
|
Larry
Zalk†
|
50,000
|
50,000
|
-
|
-
|
-
|
|||||||||||
|
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
|
30,000
|
-
|
-
|
-
|
|||||||||||
|
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
|
-
|
-
|
85
|
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
|
24,999
|
-
|
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
|
30,000
|
-
|
-
|
-
|
|||||||||||
|
Michael
Glita & Joan Glita
|
480,000
|
150,000
|
-
|
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
|
4,002,000
|
-
|
-
|
-
|
|||||||||||
|
Millennium
Global Natural Resources Fund Limited86†
|
1,000,500
|
1,000,500
|
-
|
-
|
-
|
|||||||||||
|
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
|
-
|
-
|
|||||||||||
|
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 LP†
|
866,667
|
866,667
|
-
|
-
|
-
|
|||||||||||
|
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
|
-
|
-
|
86
|
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
|
45,000
|
-
|
-
|
-
|
|||||||||||
|
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
|
52,500
|
-
|
-
|
-
|
|||||||||||
|
Rubin
Children Trust112†
|
300,000
|
300,000
|
-
|
-
|
-
|
|||||||||||
|
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
|
*
|
|||||||||||
|
Sandy
Valley Two LLC116†**
|
45,000
|
45,000
|
-
|
-
|
-
|
|||||||||||
|
Sanovest
Holdings Ltd.117†
|
577,500
|
250,000
|
125,000
|
202,500
|
*
|
|||||||||||
|
Scott
Andrews
|
150,000
|
150,000
|
-
|
-
|
-
|
87
|
Second
City Capital Partners I, Limited Partnership118†**
|
1,050,000
|
1,050,000
|
-
|
-
|
-
|
|||||||||||
|
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
|
25,500
|
-
|
-
|
-
|
|||||||||||
|
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
|
-
|
-
|
-
|
88
|
E.
P. Brady Inc. Profit Sharing Plan & Trust134†
|
37,500
|
25,000
|
12,500
|
-
|
-
|
|||||||||||
|
Thomas
W. Custer†
|
37,500
|
37,500
|
-
|
-
|
-
|
|||||||||||
|
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
|
130,000
|
-
|
20,000
|
*
|
|||||||||||
|
Vitel
Venture Corp140†**
|
999,999
|
916,666
|
83,333
|
-
|
-
|
|||||||||||
|
VP
Bank (Schweiz) AG141
|
662,550
|
250,050
|
-
|
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
|
84,000
|
249,333
|
-
|
-
|
|||||||||||
|
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
|
*
|
|||||||||||
|
Fort
Mason Master, L.P.
156
|
406,944
|
406,944
|
-
|
-
|
-
|
|||||||||||
|
Fort
Mason Partners, L.P.
156
|
26,390
|
26,390
|
-
|
-
|
-
|
___________________
|
*
|
Less
than 1.0%.
|
89
|
|
|
|
**
|
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.
|
|
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.
|
90
|
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. Warrants exercised
for an aggregate
of 261,905 shares of common stock betweem April 10,
2008 and May 15,
2008.
|
|
|
|
|
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.
|
91
|
23
|
David
Malm has the power to vote and dispose of the common
shares being
registered on behalf of David Malm Anaesthesia Inc.
|
|
|
|
|
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. Warrant exercised
for 166,667 shares
of common stock betweem April 10, 2008 and May 15,
2008.
|
|
|
|
|
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.
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|
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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”).
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29
|
Mr.
Muchowski also holds 158,730 exchangeable shares issued
on November 10,
2005 in connection with the share exchange.
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|
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|
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.
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|
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|
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.
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|
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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.
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|
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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.
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|
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|
|
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.
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|
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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.
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|
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|
|
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.
|
92
|
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.
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38
|
J.
Livingston Kosberg has the power to vote and dispose
of the common shares
being registered on behalf of Gran Tierra Investments.
|
|
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|
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.
|
|
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|
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.
|
|
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|
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.
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|
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42
|
Mr.
Hodgins also holds warrants to acquire 15,619 shares
of common stock at an
exercise price of $1.25 per share.
|
|
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|
|
43
|
Mr.
Sedun also holds warrants to acquire 62,491 shares
of common stock at an
exercise price of $1.25 per share.
|
|
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|
44
|
William
Troy has the power to vote and dispose of the common
shares being
registered on behalf of Greywolf Capital Overseas Fund
LP.
|
|
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|
45
|
William
Troy has the power to vote and dispose of the common
shares being
registered on behalf of Greywolf Capital Partner II
LP.
|
|
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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.
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47
|
This
selling stockholder is a broker-dealer and an affiliate
of a
broker-dealer.
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|
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|
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.
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|
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|
48A
|
Warrant
exercised for 33,333 shares of common stock between
February 11, 2008 and
April 10, 2008.
|
|
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|
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.
Warrant exercised for 43,333 shares of common stock
betweem April 10, 2008
and May 15, 2008.
|
|
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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. Warrant exercised for 14,567
shares of common
stock betweem April 10, 2008 and May 15, 2008.
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|
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51
|
Noel
Humphrey has the power to vote and dispose of the common
shares being
registered on behalf of the Humphrey Family Limited
Partnership.
|
|
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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.
|
|
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|
|
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.
|
93
|
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. Warrants
exercised for an
aggregate of 950,000 shares of common stock betweem
April 10, 2008 and May
15, 2008.
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|
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55
|
This
selling stockholder is an affiliate of a broker-dealer.
|
|
|
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|
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.
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|
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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.
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|
|
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58A
|
Warrant
exercised for 8,333 shares of common stock between
February 11, 2008 and
April 10, 2008.
|
|
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|
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.
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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.
|
|
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|
|
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.
|
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|
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.
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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.
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|
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|
63A
|
Warrant
exercised for 10,000 shares of common stock between
February 11, 2008 and
April 10, 2008.
|
|
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|
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.
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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.
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|
66
|
This
selling stockholder is a
broker-dealer.
|
94
|
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.
|
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|
|
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.
Warrant exercised for 8,500 shares of common stock
betweem April 10, 2008
and May 15, 2008.
|
|
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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.
|
|
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|
|
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.
|
|
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|
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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.
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|
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|
|
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.
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|
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|
|
73
|
Mr.
Chartrand also holds 158,730 exchangeable shares issued
on November 10,
2005 in connection with the share exchange.
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|
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|
|
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.
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|
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|
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.
|
95
|
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. Warrant
exercised for 1,344,000 shares of common stock on April
28,
2008.
|
|
|
|
|
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.
Warrant exercised for 333,500 shares of common stock
betweem April 10,
2008 and May 15, 2008.
|
|
|
|
|
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.
|
|
|
|
|
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.
|
|
|
|
|
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
|
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. Warrant
exercised for 15,000 shares of common stock betweem
April 10, 2008 and May
15, 2008.
|
|
|
|
|
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.
|
97
|
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.
Warrant exercised
for 100,000 shares of common stock betweem April 10,
2008 and May 15,
2008.
|
|
|
|
|
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.
Warrant exercised for
100,000 shares of common stock betweem April 10, 2008
and May 15,
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.
|
98
|
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.
|
|
|
|
|
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.
|
99
|
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. Warrant exercised for 83,350 shares
of common stock
betweem April 10, 2008 and May 15, 2008.
|
|
|
|
|
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. Warrant exercised for
10,000 shares of
common stock betweem April 10, 2008 and May 15, 2008.
|
|
|
|
|
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. Warrant
exercised for 64,000
shares of common stock betweem April 10, 2008 and May
15,
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. Warrant exercised for 15,000 shares of common
stock betweem April
10, 2008 and May 15, 2008.
|
100
|
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.
|
|
|
|
|
156
|
Fort
Mason Capital, LLC serves as the general partner of
Fort Mason Master,
L.P. and Fort Mason Partners, L.P. and, in such capacity,
exercises sole
voting and investment authority with respect to such
shares. Mr. Daniel
German serves as the sole managing member of Fort Mason
Capital, LLC. Fort
Mason Capital, LLC and Mr. German each disclaim beneficial
ownership of
such shares, except to the extent of its or his pecurniary
interest
therein, if any.
|
Shares
Being Offered From Prior Financings
This
prospectus covers shares, including shares underlying warrants,
sold in our
other private equity offerings 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 are deemed to be
“underwriters” as
defined in the Securities Act. Any profits realized by these
selling stockholder
may be deemed to be underwriting commissions. See “Plan of Distribution.”
The
table
below has been prepared based upon the information furnished
to us by the
selling stockholders as of December 20, 2007. 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 using the registration statement
of which this
prospectus forms a part or 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, two
of the selling
stockholders are broker-dealers and 12 of the selling stockholders
are
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 sets 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 under
the rules of the
SEC, and such information is not necessarily indicative of beneficial
ownership
for any other purpose. Under such rules, 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.
Beneficial
ownership is calculated based on 95,143,643 shares of our common
stock
outstanding as of December 20, 2007, which includes 14,787,300
exchangeable
shares of Goldstrike Exchange Co. issued to holders of Gran Tierra
Canada’s
common stock. Beneficial ownership is determined in accordance
with Rule 13d-3
of the Securities and Exchange Commission. 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 December 20,
2007 are deemed outstanding even if they have not actually been
exercised. Those
shares, however, are not deemed outstanding for the purpose of
the table. 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.
101
|
|
Shares
|
|
of
Common
|
Percentage
|
|||||||||
|
|
of
Common
|
|
Stock
Owned
|
of
Common
|
|||||||||
|
|
Stock
Owned
|
Shares
|
Upon
Completion
|
Stock
Outstanding
|
|||||||||
|
|
Before
the
|
of
Common Stock
|
of
the Offering
|
Upon
Completion
|
|||||||||
|
|
Offering
|
Being
Offered
|
(a)
|
of
Offering
|
|||||||||
|
Amaran
Tyab1†
|
7,500
|
7,500
|
—
|
—
|
|||||||||
|
Arleen
Agate2†
|
41,125
|
15,625
|
25,500
|
*
|
|||||||||
|
Arnie
Charbonneau3†
|
15,625
|
15,625
|
—
|
—
|
|||||||||
|
Arthur
Ruoff4†
|
48,000
|
48,000
|
—
|
—
|
|||||||||
|
Aton
Select Fund Ltd.5
|
312,477
|
312,477
|
—
|
—
|
|||||||||
|
Bank
Sal. Oppenheim jr. & Cie (Switzerland) Ltd.6†
|
1,536,500
|
1,536,500
|
—
|
—
|
|||||||||
|
Barbara
Jean Taylor7†
|
149,982
|
149,982
|
—
|
—
|
|||||||||
|
Barry
R. Balsillie8†
|
233,730
|
75,000
|
158,730
|
*
|
|||||||||
|
Bashaw
Fertilizer Ltd.9
|
92,500
|
92,500
|
—
|
—
|
|||||||||
|
Bayford
Investments, Ltd.10
|
150,000
|
150,000
|
—
|
—
|
|||||||||
|
Beattie
Homes Ltd.11†
|
149,982
|
149,982
|
—
|
—
|
|||||||||
|
Bela
Balaz12†
|
29,978
|
29,978
|
—
|
—
|
|||||||||
|
Ben
T. Morris13
|
138,750
|
93,750
|
45,000
|
*
|
|||||||||
|
Bernie
Broda14
|
46,875
|
15,625
|
31,250
|
—
|
|||||||||
|
Betty
Wong15†
|
15,625
|
15,625
|
—
|
—
|
|||||||||
|
Catherine
E. Coffield16
|
75,000
|
75,000
|
—
|
—
|
|||||||||
|
Chad
Oakes17†
|
644,957
|
374,972
|
269,985
|
*
|
|||||||||
|
Clive
Mark Stockdale18
|
48,000
|
48,000
|
—
|
—
|
|||||||||
|
Code
Consulting Ltd.19†
|
75,000
|
75,000
|
—
|
—
|
|||||||||
|
Dale
Foster20
|
191,825
|
37,472
|
154,353
|
*
|
|||||||||
|
Dana
Quentin Coffield21
|
1,834,662
|
44,978
|
1,789,784
|
1.88
|
%
|
||||||||
|
Danich
Investments, Ltd.22†
|
21,875
|
21,875
|
—
|
—
|
|||||||||
|
Daniel
Todd Dane23†
|
849,977
|
749,978
|
99,999
|
*
|
|||||||||
|
Don
A. Sanders24†
|
675,000
|
375,000
|
300,000
|
*
|
|||||||||
|
Donald
A. Wright25
|
1,658,730
|
750,000
|
908,730
|
*
|
|||||||||
|
Donald
V. Weir and Julie E. Weir26
|
258,750
|
93,750
|
165,000
|
*
|
|||||||||
|
Earl
Fawcett27†
|
21,875
|
21,875
|
—
|
—
|
|||||||||
|
Edward
B. Antonsen28†
|
102,500
|
20,000
|
82,500
|
*
|
|||||||||
|
Edward
Armogan29†
|
18,000
|
18,000
|
—
|
—
|
|||||||||
|
Edward
C. Grant30†
|
74,982
|
74,982
|
—
|
—
|
|||||||||
|
Edwin
Lau31†
|
15,625
|
15,625
|
—
|
—
|
|||||||||
|
Elizabeth
J. Fenton32†
|
37,500
|
37,500
|
—
|
—
|
|||||||||
|
Eric
Pederson33†
|
21,875
|
21,875
|
—
|
—
|
|||||||||
|
Faccone
Enterprises Ltd.34†
|
45,625
|
15,625
|
30,000
|
*
|
|||||||||
|
Gary
Gee Wai Hoy and Lily Lai Wan Hoy35†
|
41,119
|
15,619
|
25,500
|
*
|
|||||||||
|
George
L. Ball36†
|
198,750
|
93,750
|
105,000
|
—
|
|||||||||
|
George
Vernon Symons37†
|
44,978
|
44,978
|
—
|
—
|
|||||||||
|
Grant
Hodgins38†
|
41,119
|
15,619
|
25,500
|
*
|
|||||||||
|
Greg
Crowe39†
|
46,875
|
46,875
|
—
|
—
|
|||||||||
102
|
Shares
|
|||||||||||||
|
Shares
|
of
Common
|
Percentage
|
|||||||||||
|
of
Common
|
Stock
Owned
|
of
Common
|
|||||||||||
|
Stock
Owned
|
Shares
|
Upon
Completion
|
Stock
Outstanding
|
||||||||||
|
Before
the
|
of
Common Stock
|
of
the Offering
|
Upon
Completion
|
||||||||||
|
Offering
|
Being
Offered
|
(a)
|
of
Offering
|
||||||||||
|
Gregg
J. Sedun40†
|
212,491
|
62,491
|
150,000
|
*
|
|||||||||
|
Hans
Rueckert41†
|
13,500
|
13,500
|
—
|
—
|
|||||||||
|
Henry
Polessky42†
|
15,625
|
15,625
|
—
|
—
|
|||||||||
|
Hollyvale
Limited43†
|
35,500
|
10,000
|
25,500
|
*
|
|||||||||
|
Humbert
B. Powell III44
|
46,875
|
46,875
|
—
|
—
|
|||||||||
|
James
E. Anderson45
|
75,000
|
75,000
|
—
|
—
|
|||||||||
|
James
Fletcher46
|
15,000
|
15,000
|
—
|
—
|
|||||||||
|
James
L. Harris47
|
15,625
|
15,625
|
—
|
—
|
|||||||||
|
Jamie
Gilkison48†
|
15,625
|
15,625
|
—
|
—
|
|||||||||
|
Janet
R. Denhamer49†
|
37,472
|
37,472
|
—
|
—
|
|||||||||
|
Jason
Soprovich Realty Inc.50
|
46,875
|
46,875
|
—
|
—
|
|||||||||
|
Jeffrey
J. Scott51†
|
2,513,861
|
674,972
|
1,838,889
|
1.93
|
%
|
||||||||
|
Jim
and Kathleen Gilders52
|
31,243
|
31,243
|
—
|
—
|
|||||||||
|
Jim
Anderson53†
|
7,500
|
7,500
|
—
|
—
|
|||||||||
|
John
and Jodi Malanga54
|
63,000
|
37,500
|
25,500
|
*
|
|||||||||
|
John
W. Seaman55†
|
9,999
|
9,999
|
—
|
—
|
|||||||||
|
Joseph
Grosso56
|
25,000
|
25,000
|
—
|
—
|
|||||||||
|
Ken
Wong57†
|
41,125
|
15,625
|
25,500
|
*
|
|||||||||
|
Kent
Kirby58†
|
7,500
|
7,500
|
—
|
—
|
|||||||||
|
Kent
Milani59
|
5,000
|
5,000
|
—
|
—
|
|||||||||
|
Kyung
Chun Min60†
|
27,700
|
2,500
|
25,200
|
*
|
|||||||||
|
Lamond
Investments Ltd61†
|
187,500
|
187,500
|
—
|
—
|
|||||||||
|
Lindsay
Bottomer62
|
12,500
|
12,500
|
—
|
—
|
|||||||||
|
Lisa
and Donald Streu63
|
73,250
|
73,250
|
—
|
—
|
|||||||||
|
LSM
Business Services Ltd.64†
|
76,875
|
46,875
|
30,000
|
*
|
|||||||||
|
Mahmood
Mangalji65
|
7,500
|
7,500
|
—
|
—
|
|||||||||
|
Mark
E. Cline66†
|
46,875
|
46,875
|
—
|
—
|
|||||||||
|
Michael
Graham67
|
60,000
|
60,000
|
—
|
—
|
|||||||||
|
Michael
J. Stark68†
|
187,472
|
187,472
|
—
|
—
|
|||||||||
|
Michael
Paraskake69
|
38,000
|
12,500
|
25,500
|
*
|
|||||||||
|
Michael
F. Schaefer70†
|
500,000
|
500,000
|
—
|
—
|
|||||||||
|
Nadine
C. Smith71†
|
1,464,830
|
631,811
|
833,019
|
*
|
|||||||||
|
Neil
Davey72†
|
7,500
|
7,500
|
—
|
—
|
|||||||||
|
Nell
Dragovan73
|
46,875
|
46,875
|
—
|
—
|
|||||||||
|
Nick
DeMare74†
|
62,491
|
62,491
|
—
|
—
|
|||||||||
|
North
Group Limited75†
|
20,000
|
20,000
|
|
|
|||||||||
|
Perfco
Investments Ltd.76
|
2,412,302
|
525,000
|
1,877,302
|
1.98
|
%
|
||||||||
103
|
Shares
|
|||||||||||||
|
Shares
|
of
Common
|
Percentage
|
|||||||||||
|
of
Common
|
Stock
Owned
|
of
Common
|
|||||||||||
|
Stock
Owned
|
Shares
|
Upon
Completion
|
Stock
Outstanding
|
||||||||||
|
Before
the
|
of
Common Stock
|
of
the Offering
|
Upon
Completion
|
||||||||||
|
Offering
|
Being
Offered
|
(a)
|
of
Offering
|
||||||||||
|
Postell
Energy Co Ltd77†
|
37,500
|
37,500
|
—
|
—
|
|||||||||
|
Professional
Trading Services SA78
|
312,500
|
312,500
|
—
|
—
|
|||||||||
|
Prussian
Capital Corp79†
|
75,000
|
75,000
|
—
|
—
|
|||||||||
|
Richard
M. Crawford80†
|
15,625
|
15,625
|
—
|
—
|
|||||||||
|
Richard
Machin81
|
63,750
|
37,500
|
26,250
|
*
|
|||||||||
|
Richard
MacDermott82†
|
247,478
|
187,478
|
60,000
|
*
|
|||||||||
|
Rob
Anderson83†
|
91,250
|
91,250
|
—
|
—
|
|||||||||
|
Robert
A. Fenton84†
|
37,500
|
37,500
|
—
|
—
|
|||||||||
|
Robert
D. Steele85
|
549,960
|
112,500
|
437,460
|
*
|
|||||||||
|
Robert
K. Macleod86
|
39,999
|
15,000
|
24,999
|
*
|
|||||||||
|
Ron
Carey87†
|
74,978
|
74,978
|
—
|
—
|
|||||||||
|
Rowena
M. Santos88†
|
41,125
|
15,625
|
25,500
|
*
|
|||||||||
|
Samuel
Belzberg89†
|
156,250
|
156,250
|
—
|
—
|
|||||||||
|
Sanders
1998 Childrens Trust90†
|
187,500
|
187,500
|
—
|
—
|
|||||||||
|
Sanders
Opportunity Fund (Institutional) LP91†
|
1,520,904
|
721,329
|
799,575
|
*
|
|||||||||
|
Sanders
Opportunity Fund LP92†
|
475,971
|
225,546
|
250,425
|
*
|
|||||||||
|
Sanovest
Holdings Ltd.93†
|
577,500
|
202,500
|
375,000
|
—
|
|||||||||
|
Sara
Tyab94†
|
2,500
|
2,500
|
—
|
—
|
|||||||||
|
Sean
Warren95†
|
33,750
|
33,750
|
—
|
—
|
|||||||||
|
Standard
Bank PLC 96
|
1,875,000
|
1,875,000
|
—
|
—
|
|||||||||
|
Suljo
Dzafovic97†
|
15,000
|
15,000
|
—
|
—
|
|||||||||
|
Tammy
L. Gurr98
|
28,125
|
28,125
|
—
|
—
|
|||||||||
|
The
Brewster Family Trust99†
|
15,625
|
15,625
|
—
|
—
|
|||||||||
|
The
MacLachlan Investments Corporation100†
|
62,500
|
62,500
|
—
|
—
|
|||||||||
|
Tom
Chmilar101†
|
15,000
|
15,000
|
—
|
—
|
|||||||||
|
Tom
Rebane102†
|
22,500
|
22,500
|
—
|
—
|
|||||||||
|
Ursula
Kaiser103†
|
37,500
|
37,500
|
—
|
—
|
|||||||||
|
Verne
G. Johnson104†
|
1,232,725
|
187,478
|
1,045,247
|
1.10
|
%
|
||||||||
|
VP
Bank (Schweiz) AG105
|
662,550
|
312,500
|
350,050
|
—
|
|||||||||
|
Walter
A. Dawson106
|
3,055,953
|
825,000
|
2,230,953
|
2.23
|
%
|
||||||||
|
Wayne
Hucik107†
|
21,875
|
21,875
|
—
|
—
|
|||||||||
|
Wildcat
Investments Ltd.108†
|
75,000
|
75,000
|
—
|
—
|
|||||||||
|
William
Lowe109†
|
93,750
|
93,750
|
—
|
—
|
|||||||||
|
William
McCluskey110†
|
393,750
|
393,750
|
—
|
—
|
|||||||||
|
1053361
Alberta Ltd.111†
|
491,865
|
262,500
|
229,365
|
*
|
|||||||||
|
1087741
Alberta Ltd.112†
|
15,993
|
15,993
|
—
|
—
|
|||||||||
|
666977
Alberta Ltd.113†
|
12,000
|
12,000
|
—
|
—
|
|||||||||
|
893619
Alberta Ltd.114†
|
149,972
|
149,972
|
—
|
—
|
|||||||||
|
954866
Alberta Ltd.115†
|
30,000
|
30,000
|
—
|
—
|
|||||||||
|
John
D. Long, Jr116
|
684,265
|
305,689
|
378,576
|
*
|
|||||||||
|
*
|
Less
than 1.0%.
|
|
(a)
|
Assumes
all of the shares of common stock beneficially owned
by the selling
stockholders, including all shares of common stock
underlying warrants
held by the selling stockholders, are sold in the
offering.
|
|
†
|
Based
on information provided as of February 2, 2007. We
were unable to obtain
updated information from these selling stockholders.
|
|
1
|
Includes
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.
|
104
|
2
|
Includes
warrants to acquire 15,625 shares of common stock
at an exercise price of
$1.25 per share, acquired in a private placement
offering with closing
dates on September 1 and October 7, 2005 (the “First 2005 Offering”). Mrs.
Agate also holds 17,000 shares of common stock and
warrants to acquire an
additional 8,500 shares of common stock at an exercise
price of $1.05 per
share, acquired in the June, 2006 private offering.
|
|
|
|
|
3
|
Includes
warrants to acquire 15,625 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
4
|
Includes
32,000 shares of common stock and warrants to acquire
an additional 16,000
shares of common stock at an exercise price of $1.25
per share, acquired
in the First 2005 Offering.
|
|
|
|
|
5
|
Includes
warrants to acquire 312,477 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
David Dawes has the
power to vote and dispose of the shares being registered
on behalf of Aton
Select Fund Ltd.
|
|
|
|
|
6
|
Includes
474,000 shares of common stock and warrants to acquire
an additional
1,062,500 shares of common stock at an exercise price
of $1.25 per share,
acquired in the First 2005 Offering. R. Gelant and
U. Fricher have the
power to vote and dispose of the shares being registered
on behalf of Bank
Sal. Oppenheimer Jr.
|
|
|
|
|
7
|
Includes
99,988 shares of common stock and warrants to acquire
an additional 49,994
shares of common stock at an exercise price of $1.25
per share, acquired
in the First 2005 Offering.
|
|
|
|
|
8
|
Includes
50,000 shares of common stock and warrants to acquire
an additional 25,000
shares of common stock at an exercise price of $1.25
per share, acquired
in the First 2005 Offering. Includes 158,703 exchangeable
shares issued on
November 10, 2005 in connection with the share
exchange.
|
|
|
|
|
9
|
Includes
92,500 shares of common stock acquired as part of
the First 2005 Offering.
Richard Groom has the power to vote and dispose of
the common shares being
registered on behalf of Bashaw Fertilizer Ltd.
|
|
|
|
|
10
|
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 First 2005 Offering. Ronald Brimacombe
has the power to
vote and dispose of the common shares being registered
on behalf of
Bayford Investments, Ltd.
|
|
|
|
|
11
|
Includes
99,988 shares of common stock and warrants to acquire
an additional 49,994
shares of common stock at an exercise price of $1.25
per share, acquired
in the First 2005 Offering. William K. Beattie has
the power to vote and
dispose of the common shares being registered on
behalf of Beattie Homes
Ltd.
|
|
|
|
|
12
|
Includes
19,985 shares of common stock and warrants to acquire
an additional 9,993
shares of common stock at an exercise price of $1.25
per share, acquired
in the First 2005 Offering.
|
|
|
|
|
13
|
Includes
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. Mr. Morris 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 $1.05 per share, acquired
in the June, 2006
private offering. Mr. Morris is an affiliate of a
broker-dealer.
|
|
|
|
|
14
|
Includes
31,250 shares of common stock and warrants to acquire
15,625 shares of
common stock at an exercise price of $1.25 per share,
acquired in the
First 2005 Offering.
|
|
|
|
|
15
|
Includes
warrants to acquire 15,625 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
16
|
Includes
50,000 shares of common stock and warrants to acquire
an additional 25,000
shares of common stock at an exercise price of $1.25
per share, acquired
in the First 2005 Offering. Ms. Coffield is the mother
of Dana Coffield,
who serves as our President, Chief Executive Officer
and as a member of
the board of directors.
|
105
|
17
|
Includes
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. Mr. Oakes also
holds 179,990 shares
of common stock and warrants to acquire an additional
89,995 shares of
common stock at an exercise price of $1.05 per share,
acquired in the
June, 2006 private offering.
|
|
|
|
|
18
|
Includes
32,000 shares of common stock and warrants to acquire
an additional 16,000
shares of common stock at an exercise price of $1.25
per share, acquired
in the First 2005 Offering. Mr. Stockdale is an affiliate
of a
broker-dealer.
|
|
|
|
|
19
|
Includes
50,000 shares of common stock and warrants to acquire
an additional 25,000
shares of common stock at an exercise price of $1.25
per share, acquired
in a private placement offering with closing dates
on October 27, 2005 and
December 14, 2005 (the “Second 2005 Offering”). Lance Tracey has the power
to vote and dispose of the common shares being registered
on behalf of
Code Consulting Ltd.
|
|
20
|
Includes
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, acquired
in the First 2005 Offering. Mr. Foster also holds
79,365 exchangeable
shares issued on November 10, 2005 in connection
with the share exchange,
and 49,992 shares of common stock and warrants to
acquire an additional
24,996 shares of common stock at an exercise price
of $1.05 per share,
acquired in the June, 2006 private offering.
|
|
|
|
|
21
|
Includes
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, acquired
in the First 2005 Offering. Mr. Coffield also holds
66,667 shares of
common stock and warrants to acquire an additional
33,334 shares of common
stock at an exercise price of $1.05 per share, acquired
in the June, 2006
private offering, 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.
|
|
|
|
|
22
|
Includes
warrants to acquire 21,875 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
Danny Remenda has
the power to vote and dispose of the common shares
being registered on
behalf of Danich Investments, Ltd.
|
|
|
|
|
23
|
Includes
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,
acquired in the First 2005 Offering. Mr. Dane also
holds 66,666 shares of
common stock and warrants to acquire an additional
33,333 shares of common
stock at an exercise price of $1.05 per share, acquired
in the June, 2006
private offering.
|
|
|
|
|
24
|
Includes
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,
acquired in the First 2005 Offering. Mr. Sanders
also holds 200,000 shares
of common stock and warrants to acquire an additional
100,000 shares of
common stock at an exercise price of $1.05 per share,
acquired in the
June, 2006 private offering. Mr. Sanders is an affiliate
of a
broker-dealer.
|
|
|
|
|
25
|
Includes
500,000 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,
acquired in the First 2005 Offering. Mr. Wright also
holds 158,730
exchangeable shares issued on November 10, 2005 in
connection with the
share exchange, and 500,000 shares of common stock
and warrants to acquire
an additional 250,000 shares of common stock at an
exercise price of $1.05
per share, acquired in the June, 2006 private offering.
|
|
|
|
|
26
|
Includes
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. The selling stockholder
also holds 100,000
shares of common stock and warrants to acquire an
additional 50,000 shares
of common stock at an exercise price of $1.05 per
share, acquired in the
June, 2006 private offering, and 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
|
Includes
warrants to acquire 21,875 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
28
|
Includes
warrants to acquire 20,000 shares of common stock
at an exercise price of
$1.25 per share, acquired in the Second 2005 Offering.
Mr. Antonsen also
holds 55,000 shares of common stock and warrants
to acquire an additional
27,500 shares of common stock at an exercise price
of $1.05 per share,
acquired in the June, 2006 private
offering.
|
106
|
29
|
Includes
12,000 shares of common stock and warrants to acquire
an additional 6,000
shares of common stock at an exercise price of $1.25
per share, acquired
in the Second 2005 Offering.
|
|
|
|
|
30
|
Includes
49,988 shares of common stock and warrants to acquire
an additional 24,994
shares of common stock at an exercise price of $1.25
per share, acquired
in the Second 2005 Offering.
|
|
|
|
|
31
|
Includes
warrants to acquire 15,625 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
32
|
Includes
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.
|
|
|
|
|
33
|
Includes
warrants to acquire 21,875 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
34
|
Includes
warrants to acquire 15,625 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
The selling
stockholder also holds 20,000 shares of common stock
and warrants to
acquire an additional 10,000 shares of common stock
at an exercise price
of $1.05 per share, acquired in the June, 2006 private
offering. Mario
Faccone has the power to vote and dispose of the
common shares being
registered on behalf of Faccone Enterprises.
|
|
35
|
Includes
warrants to acquire 15,619 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
The selling
stockholder also holds 17,000 shares of common stock
and warrants to
acquire an additional 8,500 shares of common stock
at an exercise price of
$1.05 per share, acquired in the June, 2006 private
offering.
|
|
|
|
|
36
|
Includes
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. The selling stockholder
also holds 70,000
shares of common stock and warrants to acquire an
additional 35,000 shares
of common stock at an exercise price of $1.05 per
share, acquired in the
June, 2006 private offering. Mr. Ball is an affiliate
of a
broker-dealer.
|
|
|
|
|
37
|
Includes
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, acquired
in the First 2005 Offering.
|
|
|
|
|
38
|
Includes
warrants to acquire 15,619 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
The selling
stockholder also holds 17,000 shares of common stock
and warrants to
acquire an additional 8,500 shares of common stock
at an exercise price of
$1.05 per share, acquired in the June, 2006 private
offering.
|
|
|
|
|
39
|
Includes
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.
|
|
|
|
|
40
|
Includes
warrants to acquire 62,491 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
The selling
stockholder also holds 100,000 shares of common stock
and warrants to
acquire an additional 50,000 shares of common stock
at an exercise price
of $1.05 per share, acquired in the June, 2006 private
offering.
|
|
|
|
|
41
|
Includes
warrants to acquire 13,500 shares of common stock
at an exercise price os
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
42
|
Includes
warrants to acquire 15,625 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
43
|
Includes
warrants to acquire 10,000 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
The selling
stockholder also holds17,000 shares of common stock
and warrants to
acquire an additional 8,500 shares of common stock
at an exercise price of
$1.05 per share, acquired in the June, 2006 private
offering. Jeremy
Spring has the power to vote and dispose of the common
shares being
registered on behalf of Hollyvale
Limited.
|
107
|
44
|
Includes
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 First 2005 Offering. Mr. Powell is an affiliate
of a
broker-dealer.
|
|
|
|
|
45
|
Includes
50,000 shares of common stock and warrants to acquire
an additional 25,000
shares of common stock at an exercise price of $1.25
per share, acquired
in the First 2005 Offering.
|
|
|
|
|
46
|
Includes
warrants to acquire 15,000 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
47
|
Includes
warrants to acquire 15,625 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
48
|
Includes
warrants to acquire 15,625 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
49
|
Includes
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, acquired
in the First 2005 Offering.
|
|
|
|
|
50
|
Includes
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 First 2005 Offering. Jason Soprovich has the
power to vote and
dispose of the common shares being registered on
behalf of Jason Soprovich
Realty.
|
|
|
|
|
51
|
Includes
349,981 shares of common stock and warrants to acquire
an additional
174,991 shares of common stock at an exercise price
of $1.25 per share,
acquired in the First 2005 Offering. 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. Mr. Scott also holds 1,688,889 exchangeable
shares issued on
November 10, 2005 in connection with the share exchange
and 100,000 shares
of common stock and warrants to acquire 50,000 shares
of common stock at
an exercise price of $1.05 per share, acquired in
our June, 2006 private
offering. Mr. Scott serves as our Chairman of the
Board.
|
|
|
|
|
52
|
Includes
warrants to acquire 31,243 shares of common stock
at an exercise price of
$1.25 per share, acquired in the Second 2005 Offering.
|
|
53
|
Includes
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 Second 2005 Offering.
|
|
|
|
|
54
|
Includes
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. John and Jodi Malanga
are affiliates of a
broker-dealer. The selling stockholders also hold
17,000 shares of common
stock and warrants to acquire an additional 8,500
shares of common stock
at an exercise price of $1.05 per share, held by
IRA for the benefit of
Jodi Malanga/Pershing LLC as Custodian, acquired
in the June, 2006 private
offering.
|
|
|
|
|
55
|
Includes
9,999 shares of common stock issued upon exercise
of a warrant with at an
exercise price of $1.25 per share, acquired in the
Second 2005
Offering.
|
|
|
|
|
56
|
Includes
25,000 shares of common stock issued upon exercise
in full of a warrant
with an exercise price of $1.25 per share, acquired
in the First 2005
Offering.
|
|
|
|
|
57
|
Includes
warrants to acquire 15,625 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
The selling
stockholder also holds 17,000 shares of common stock
and warrants to
acquire an additional 8,500 shares of common stock
at an exercise price of
$1.05 per share, acquired in the June, 2006 private
offering.
|
|
|
|
|
58
|
Includes
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 Second 2005 Offering.
|
|
|
|
|
59
|
Includes
warrants to acquire 5,000 shares of common stock
at an exercise price of
$1.25 per share, acquired in the Second 2005 Offering.
|
108
|
60
|
Includes
warrants to acquire 2,500 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
The selling
stockholder also holds 16,800 shares of common stock
and warrants to
acquire an additional 8,400 shares of common stock
at an exercise price of
$1.05 per share, acquired in the June, 2006 private
offering.
|
|
|
|
|
61
|
Includes
125,000 shares of common stock and warrants to acquire
an additional
62,500 shares of common stock at an exercise price
of $1.25 per share,
acquired in the Second 2005 Offering. which warrant
was exercised in full
on April 27, 2008. Robert Lamond, president of Lamond
Investments, Ltd.
has the power to vote and dispose of the common shares
being registered on
behalf of Lamond Investments, Ltd.
|
|
|
|
|
62
|
Consists
of 12,500 shares of common stock, acquired as part
of the Second 2005
Offering.
|
|
|
|
|
63
|
Includes
73,250 shares of common stock, acquired in the First
2005
Offering.
|
|
|
|
|
64
|
Includes
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. The selling stockholder
also holds 20,000
shares of common stock and warrants to acquire an
additional 10,000 shares
of common stock at an exercise price of $1.05 per
share, acquired in the
June, 2006 private offering. Lloyd Guenther has the
power to vote and
dispose of the common shares being registered on
behalf of LSM Business
Services, Ltd.
|
|
|
|
|
65
|
Includes
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.
|
|
|
|
|
66
|
Includes
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 First 2005 Offering.
|
|
|
|
|
67
|
Includes
40,000 shares of common stock and warrants to acquire
an additional 20,000
shares of common stock at an exercise price of $1.25
per share, acquired
in the First 2005 Offering.
|
|
|
|
|
68
|
Includes
124,981 shares of common stock and warrants to acquire
an additional
62,491 shares of common stock at an exercise price
of $1.25 per share,
acquired in the First 2005 Offering.
|
|
|
|
|
69
|
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.
The selling
stockholder also holds 17,000 shares of common stock
and warrants to
acquire an additional 8,500 shares of common stock
at an exercise price of
$1.05 per share, acquired in the June, 2006 private
offering.
|
|
|
|
|
70
|
Includes
warrants to acquire 125,000 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
Includes 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, acquired
in the Second 2005 Offering.
|
|
|
|
|
71
|
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 as well as 69,425
shares of common
stock and a warrant to acquire an additional 31,664
shares of common stock
at an exercise price of $1.05 per share, acquired
in the June, 2006
private offering. Also includes 679,157 shares
of common stock which are issuable upon the exchange
of exchangeable
shares of Goldstrike Exchange Co.
Ms. Smith served as a member of our board of directors
until March 27,
2008. The information presented is as of February
11,
2008.
|
|
|
|
|
72
|
Includes
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
|
Includes
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.
|
|
|
|
|
74
|
Includes
warrants to acquire 62,491 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005
Offering.
|
109
|
75
|
Includes
warrants to acquire 20,000 shares of common stock
at an exercise price of
$1.25 per share, acquired in the Second 2005 Offering.
Tom Kusumoto has
the power to vote and dispose of the common shares
being registered on
behalf of North Group Limited.
|
|
|
|
|
76
|
Includes
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. The selling
stockholder also holds
200,000 shares of common stock and warrants to acquire
an additional
100,000 shares of common stock at an exercise price
of $1.05 per share,
acquired in the June, 2006 private offering, and
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 and
disclaims beneficial
ownership of such shares.
|
|
|
|
|
77
|
Includes
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. Jeffrey Scott, Chairman
of our Board of
Directors, is the President of Postell Energy Co.
Ltd. and has the power
to vote and dispose of the common shares being registered
on its
behalf.
|
|
|
|
|
78
|
Includes
warrants to acquire 312,500 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
Rene Simon has the
power to vote and dispose of the common shares being
registered on behalf
of Professional Trading Services SA.
|
|
|
|
|
79
|
Includes
50,000 shares of common stock and warrants to acquire
an additional 25,000
shares of common stock at an exercise price of $1.25
per share, acquired
in the Second 2005 Offering. Cary Pinkowski has the
power to vote and
dispose of the common shares being registered on
behalf of Prussian
Capital Corp.
|
|
|
|
|
80
|
Includes
warrants to acquire 15,625 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
81
|
Includes
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. The selling stockholder
also holds 17,500
shares of common stock and warrants to acquire an
additional 8,750 shares
of common stock at an exercise price of $1.05 per
share, acquired in the
June, 2006 private offering.
|
|
|
|
|
82
|
Includes
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. The selling
stockholder also holds
40,000 shares of common stock and warrants to acquire
an additional 20,000
shares of common stock at an exercise price of $1.05
per share, acquired
in the June, 2006 private offering.
|
|
|
|
|
83
|
Includes
warrants to acquire 31,250 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
Includes 40,000
shares of common stock and warrants to acquire an
additional 20,000 shares
of common stock at an exercise price of $1.25 per
share, acquired in the
Second 2005 Offering. This selling stockholder is
a
broker-dealer.
|
|
|
|
|
84
|
Includes
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.
|
|
|
|
|
85
|
Includes
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. The selling stockholder
also holds 80,000
shares of common stock and warrants to acquire an
additional 40,000 shares
of common stock at an exercise price of $1.05 per
share, acquired in the
June, 2006 private offering.
|
|
|
|
|
86
|
Includes
warrants to acquire 15,000 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
The selling
stockholder also holds 16,666 shares of common stock
and
|
|
|
warrants
to acquire an additional 8,333 shares of common stock
at an exercise price
of $1.05 per share, acquired in the June, 2006 private
offering.
|
|
|
|
|
87
|
Includes
49,985 shares of common stock and a warrant to acquire
an additional
24,993 shares of common stock at an exercise price
of $1.25 per share,
acquired in the First 2005 Offering, which warrant
was exercised on April
17, 2008.
|
110
|
88
|
Includes
warrants to acquire 15,625 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
The selling
stockholder also holds 17,000 shares of common stock
and warrants to
acquire an additional 8,500 shares of common stock
at an exercise price of
$1.05 per share, acquired in the June, 2006 private
offering.
|
|
|
|
|
89
|
Includes
warrants to acquire 156,250 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
90
|
Includes
125,000 shares of common stock and warrants to acquire
an additional
62,500 shares of common stock at an exercise price
of $1.25 per share,
acquired in the First 2005 Offering. Sanders 1998
Children’s Trust 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 1998
Children’s Trust. Sanders 1998 Children’s Trust does not have any
agreements, arrangements or understandings with any
other persons, either
directly or indirectly to dispose of the common stock
being
registered.
|
|
|
|
|
91
|
Includes
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. The selling
stockholder also holds
533,050 shares of common stock and warrants to acquire
an additional
266,525 shares of common stock at an exercise price
of $1.05 per share,
acquired in the June, 2006 private offering. 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.
|
|
|
|
|
92
|
Includes
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. The selling
stockholder also holds
166,950 shares of common stock and warrants to acquire
an additional
83,475 shares of common stock at an exercise price
of $1.05 per share,
acquired in the June, 2006 private offering. 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.
|
|
|
|
|
93
|
Includes
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, and 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. The
selling stockholder 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 $1.05 per share, acquired in the June, 2006
private offering. Tom
and Hydri Kusumoto have the power to vote and dispose
of the common shares
being registered on behalf of Sanovest Holdings Ltd.
|
|
|
|
|
94
|
Includes
warrants to acquire 2,500 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
95
|
Includes
22,500 shares of common stock and warrants to acquire
an additional 11,250
shares of common stock at an exercise price of $1.25
per share, acquired
in the Second 2005 Offering.
|
|
|
|
|
96
|
Includes
1,250,000 shares of common stock and warrants to
acquire an additional
625,000 shares of common stock at an exercise price
of $1.25 per share,
acquired in the First 2005 Offering. Roderick Frasier
has the power to
vote and dispose of the common shares being registered
on behalf of
Standard Bank PLC.
|
|
|
|
|
97
|
Includes
10,000 shares of common stock and warrants to acquire
an additional 5,000
shares of common stock at an exercise price of $1.25
per share, acquired
in the Second 2005 Offering.
|
|
|
|
|
98
|
Includes
18,750 shares of common stock and warrants to acquire
an additional 9,375
shares of common stock at an exercise price of $1.25
per share, acquired
in the First 2005 Offering.
|
|
|
|
|
99
|
Includes
warrants to acquire 15,625 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
Jim Brewster has the
power to vote and dispose of the common shares being
registered on behalf
of The Brewster Family Trust.
|
|
|
|
|
100
|
Includes
warrants to acquire 62,500 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
The MacLachlan
Investments Corporation is an affiliate of a broker-dealer.
Peter Brown
has the power to vote and dispose of the common shares
being registered on
behalf of The MacLachlan Investments
Corporation.
|
111
|
101
|
Includes
warrants to acquire 15,000 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
102
|
Includes
15,000 shares of common stock and warrants to acquire
an additional 7,500
shares of common stock at an exercise price of $1.25
per share, acquired
in the Second 2005 Offering.
|
|
|
|
|
103
|
Includes
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.
|
|
|
|
|
104
|
Includes
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. The selling
stockholder also holds
100,006 shares of common stock and warrants to acquire
an additional
50,003 shares of common stock at an exercise price
of $1.05 per share,
acquired in the June, 2006 private offering, and
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.
|
|
|
|
|
105
|
Includes
100,000 shares of common stock and warrants to acquire
312,500 shares of
common stock at an exercise price of $1.25 per share,
acquired in the
First 2005 Offering. The selling stockholder also
holds 166,700 shares of
common stock and warrants to acquire an additional
83,350 shares of common
stock at an exercise price of $1.05 per share, acquired
in the June, 2006
private offering. Daniel Lacher has the power to
vote and dispose of the
common shares being registered on behalf of VP Bank
(Schweiz)AG.
|
|
|
|
|
106
|
Includes
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 Second 2005 Offering. The selling
stockholder also holds
101,587 exchangeable shares issued on November 10,
2005 in connection with
the share exchange and 83,334 shares of common stock
issuable pursuant to
options exercisable within 60 days of December 20,
2007. Also includes
550,000 shares of common stock, 275,000 shares of
common stock issuable
pursuant to warrants, within 60 days of December
20, 2007, and 1,587,302
exchangeable shares held by Perfco Investments Ltd.,
of which Mr. Dawson
is the President and sole owner. Also includes 158,730
exchangeable shares
held by Mr. Dawson’s spouse. Mr. Dawson disclaims beneficial ownership
of
the 158,730 exchangeable shares held by his spouse.
The shares being sold
includes the shares being sold by Perfco, which are
also separately
disclosed as being sold by Perfco in this table.
See Note 76. Mr. Dawson
serves as a member of our board of directors.
|
|
|
|
|
107
|
Includes
warrants to acquire 21,875 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
|
|
|
|
|
108
|
Includes
50,000 shares of common stock and warrants to acquire
an additional 25,000
shares of common stock at an exercise price of $1.25
per share, acquired
in the First 2005 Offering. Bruce Nurse has the power
to vote and dispose
of the common shares being registered on behalf of
Wildcat Investments
Ltd.
|
|
|
|
|
109
|
Includes
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.
|
|
|
|
|
110
|
Includes
262,500 shares of common stock and warrants to acquire
131,250 shares of
common stock at an exercise price of $1.25 per share,
acquired in a
private placement offering completed on February
2, 2006 (the “Third 2005
Offering”). Mr. McCluskey is an affiliate of a
broker-dealer.
|
|
|
|
|
111
|
Includes
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 First 2005 Offering. The selling
stockholder also holds
79,365 exchangeable shares issued on November 10,
2005 in connection with
the share exchange, and 100,000 shares of common
stock and warrants to
acquire an additional 50,000 shares of common stock
at an exercise price
of $1.05 per share, acquired in the June, 2006 private
offering. Glenn
Gurr, President of 1053361 Alberta Ltd. has sole
voting and investment
power over these shares.
|
|
|
|
|
112
|
Includes
warrants to acquire 15,993 shares of common stock
at an exercise price of
$1.25 per share, acquired in the First 2005 Offering.
Wade MacBain has the
power to vote and dispose of the common shares being
registered on behalf
of 1087741 Alberta Ltd.
|
112
|
113
|
Includes
8,000 shares of common stock and warrants to acquire
an additional 4,000
shares of common stock at an exercise price of $1.25
per share, acquired
in the First 2005 Offering. Serge Bonnet has the
power to vote and dispose
of the common shares being registered on behalf of
666977 Alberta
Ltd.
|
|
|
|
|
114
|
Includes
99,981 shares of common stock and warrants to acquire
an additional 49,991
shares of common stock at an exercise price of 1.25
per share, acquired in
the First 2005 Offering. Dale Foster has the power
to vote and dispose of
the common shares being registered on behalf of 893619
Alberta
Ltd.
|
|
|
|
|
115
|
Includes
20,000 shares of common stock and warrants to acquire
an additional 10,000
shares of common stock at an exercise price of $1.25
per share, acquired
in the Second 2005 Offering. Scott Harkness has the
power to vote and
dispose of the common shares being registered on
behalf of 954866 Alberta
Ltd.
|
|
116
|
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 as well as 30,575
shares of common
stock and a warrant to acquire an additional 18,336
shares of common stock
at an exercise price of $1.05 per share, acquired
in the June, 2006
private offering. Also includes 299,104 shares
of common stock which are issuable upon the exchange
of exchangeable
shares of Goldstrike Exchange Co.
The information presented is as of February 11,
2008.
|
Exchangeable
Shares and Additional Warrants
This
prospectus covers the offer and sale of shares issued or issuable to the selling
stockholders upon exchange of exchangeable shares of Gran Tierra Goldstrike,
Inc., an indirect subsidiary of Gran Tierra Energy Inc. previously held or
currently held by the selling stockholders. The exchangeable shares were issued
to the selling stockholders in a private offering on November 10, 2005. This
prospectus also covers the offer and sale of 2,920,574 shares issuable upon
exercise of warrants held by three selling stockholders issued in connection
with a private placement in June 2006.
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 are deemed to be “underwriters” as
defined in the Securities Act. Any profits realized by these selling stockholder
may be deemed to be underwriting commissions. See “Plan of Distribution.”
The
table
below has been prepared based upon the information furnished to us by the
selling stockholders. 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, three of the selling
stockholders are broker-dealers and none of the selling stockholders are
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 sets 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 under the rules of
the
SEC, and such information is not necessarily indicative of beneficial ownership
for any other purpose. Under such rules, 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.
Beneficial
ownership is calculated based on 95,051,909 shares of our common stock
outstanding as of November 15, 2007, which includes 14,787,300 exchangeable
shares of Goldstrike Exchange Co. issued to holders of Gran Tierra Canada’s
common stock. Beneficial ownership is determined in accordance with Rule 13d-3
of the Securities and Exchange Commission. 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 November
15,
2007 are deemed outstanding even if they have not actually been exercised.
Those
shares, however, are not deemed outstanding for the purpose of the table. 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.
113
|
|
|
|
|
Shares
of Common
|
|
|
|
Shares
of Common Stock Beneficially
|
|
Percentage
of Common Stock
|
|
|||||
|
|
|
|
|
Stock
Beneficially
|
|
Shares
of
Common
|
Owned
upon
|
Beneficially
Owned
|
||||||||
|
Owned
Before the
|
Stock
Being
|
Completion
of
|
Upon
Completion of
|
|||||||||||||
|
Footnote
|
Shareholder
|
Offering
|
Offered
|
Offering
|
Offering
|
|||||||||||
|
1
|
Jeffrey
J. Scott
|
2,647,195
|
1,688,889
|
874,972
|
*
|
|||||||||||
|
2
|
|
Walter
A. Dawson
|
3,055,953
|
101,587
|
2,954,366
|
3.12
|
%
|
|||||||||
|
3
|
|
Margaret
A. Dawson
|
158,730
|
158,730
|
0
|
*
|
||||||||||
|
4
|
Perfco
Investments Ltd.
|
2,412,302
|
1,587,302
|
825,000
|
*
|
|||||||||||
|
5
|
Verne
G. Johnson
|
1,858,714
|
895,238
|
963,476
|
*
|
|||||||||||
|
6
|
KristErin
Resources Inc.
|
396,825
|
396,825
|
0
|
*
|
|||||||||||
|
|
Randall
Pounds
|
317,460
|
317,460
|
0
|
*
|
|||||||||||
|
7
|
Rafael
Orunesu
|
1,951,351
|
1,689,683
|
261,668
|
*
|
|||||||||||
|
8
|
Dana
Coffield
|
2,009,664
|
1,689,683
|
319,981
|
*
|
|||||||||||
|
9
|
M.
C. Coffield
|
228,730
|
158,730
|
70,000
|
*
|
|||||||||||
|
10
|
Max
Hsu Wei
|
1,871,335
|
1,689,683
|
181,652
|
*
|
|||||||||||
|
11
|
James
Robert Hart
|
1,743,850
|
1,689,683
|
54,167
|
*
|
|||||||||||
|
12
|
Mark
Wayne
|
793,651
|
793,651
|
0
|
*
|
|||||||||||
|
13
|
Adeco
Exploration Company Ltd.
|
158,730
|
158,730
|
0
|
*
|
|||||||||||
|
|
Luc
Chartrand
|
233,730
|
158,730
|
75,000
|
*
|
|||||||||||
|
14
|
John
Taylor
|
183,730
|
158,730
|
25,000
|
*
|
|||||||||||
|
|
Barry
R. Balsillie
|
208,730
|
158,730
|
50,000
|
*
|
|||||||||||
|
15
|
William
J. Scott
|
388,095
|
158,730
|
229,365
|
*
|
|||||||||||
|
16
|
Dale
Foster
|
341,797
|
79,365
|
262,432
|
*
|
|||||||||||
|
17
|
The
Roger Tang Family Trust
|
158,730
|
158,730
|
0
|
*
|
|||||||||||
|
18
|
Josef
Hocher
|
79,365
|
79,365
|
0
|
*
|
|||||||||||
|
|
Keith
Bekker
|
79,365
|
79,365
|
0
|
*
|
|||||||||||
|
12
|
Dennis
Flanagan
|
158,730
|
158,730
|
0
|
*
|
|||||||||||
|
19
|
Soderglen
Ranches Ltd.
|
258,730
|
158,730
|
100,000
|
*
|
|||||||||||
|
12
|
David
Roger Keith
|
158,730
|
158,730
|
0
|
*
|
|||||||||||
|
20
|
Robert
D. Steele
|
472,460
|
317,460
|
155,000
|
*
|
|||||||||||
|
12
|
James
Greenslade
|
158,730
|
158,730
|
0
|
*
|
|||||||||||
|
21
|
Donald
A. Wright
|
1,658,730
|
158,730
|
1,500,000
|
1.58
|
%
|
||||||||||
|
|
Gary
R. Smith
|
158,730
|
158,730
|
0
|
*
|
|||||||||||
|
22
|
Neil
MacKenzie
|
258,730
|
158,730
|
100,000
|
*
|
|||||||||||
|
12
|
Ahmed
Hussain Al-Khalaf
|
158,730
|
158,730
|
0
|
*
|
|||||||||||
|
23
|
Argentiere
Ltd.
|
158,730
|
158,730
|
0
|
*
|
|||||||||||
|
24
|
1110071
Ontario Inc.
|
317,460
|
317,460
|
0
|
*
|
|||||||||||
|
25
|
Slapco
Ltd.
|
104,761
|
104,761
|
0
|
*
|
|||||||||||
114
|
Shares
of Common
|
Shares
of Common Stock Beneficially
|
Percentage
of Common Stock
|
||||||||||||||
|
Stock
Beneficially
|
Shares
of Common
|
Owned
upon
|
Beneficially
Owned
|
|||||||||||||
|
Owned
Before the
|
Stock
Being
|
Completion
of
|
Upon
Completion of
|
|||||||||||||
|
Footnote
|
Shareholder
|
Offering
|
Offered
|
Offering
|
Offering
|
|||||||||||
|
26
|
H.
Alexander Rowlands
|
212,699
|
212,699
|
0
|
*
|
|||||||||||
|
27
|
411209
Alberta Ltd.
|
1,587,302
|
1,587,302
|
0
|
*
|
|||||||||||
|
28
|
Edward
J. Muchowski
|
308,730
|
158,730
|
150,000
|
*
|
|||||||||||
|
12
|
Reg
Greenslade
|
158,730
|
158,730
|
0
|
*
|
|||||||||||
|
12
|
Gordon
Skulmoski
|
79,365
|
79,365
|
0
|
*
|
|||||||||||
|
29
|
Frank
Elliott
|
207,730
|
158,730
|
49,000
|
*
|
|||||||||||
|
30
|
1053361
Alberta Ltd.
|
491,865
|
79,365
|
412,500
|
*
|
|||||||||||
|
31
|
Donald
MacDiarmid
|
79,365
|
79,365
|
0
|
*
|
|||||||||||
|
32
|
Deutsche
Bank Securities Inc.
|
1,308,291
|
1,308,291
|
0
|
*
|
|||||||||||
|
33
|
SMH
Capital Inc.
|
1,308,921
|
1,308,921
|
0
|
*
|
|||||||||||
|
34
|
Canaccord
Capital Corporation
|
207,847
|
207,847
|
0
|
*
|
|||||||||||
|
|
Total
|
21,555,215
|
||||||||||||||
*
Less
than one percent.
|
1
|
Includes
1,688,889 shares of common stock issuable upon the exchange of
exchangeable shares and 133,334 shares of common stock issuable
pursuant
to options and 274,991 shares of common stock issuable pursuant
to
warrants exercisable within 60 days of November 15, 2007. Mr. Scott
serves
as our Chairman of the Board.
|
|
2
|
Includes
101,587 shares of common stock issuable upon the exchange of exchangeable
shares and 83,334 shares of common stock issuable pursuant to options
exercisable within 60 days of November 15, 2007 and 375,000 shares
of
common stock issuable pursuant to warrants exercisable within 60
days of
November 15, 2007. Also includes 550,000 shares of common stock
and
1,587,302 shares of common stock issuable upon the exchange of
exchangeable shares held by Perfco Investments Ltd., of which Mr.
Dawson
is the President and sole owner. Also includes 158,730 shares of
common
stock issuable upon the exchange of exchangeable shares held by
Mr.
Dawson’s spouse. Mr. Dawson disclaims beneficial ownership of the 158,730
shares of common stock issuable to his spouse. Mr. Dawson serves
as a
member of the Board.
|
|
|
|
|
3
|
Includes
158,730 shares of common stock issuable upon the exchange of exchangeable
shares. Does not include shares beneficially owned by Margaret
Dawson’s
husband, Walter Dawson, or Perfco Investments Ltd. See notes 2
and 4 to
this table.
|
|
4
|
Includes
1,587,302 shares of common stock issuable upon the exchange of
exchangeable shares and 275,000 shares of common stock issuable
pursuant
to options or warrants exercisable within 60 days of November 15,
2007.
Walter Dawson, President and sole owner of Perfco Investments Ltd.,
has
sole investment and voting power over the shares of common stock
owned by
Perfco Investments Ltd. Mr. Dawson is a member of the
Board.
|
|
5
|
Includes
895,238 shares of common stock issuable upon the exchange of exchangeable
shares and 83,334 shares of common stock issuable pursuant to options
exercisable within 60 days of November 15, 2007 and 112,496 shares
of
common stock issuable pursuant to warrants exercisable within 60
days of
November 15, 2007. 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 shares of common stock
issuable
upon the exchange of exchangeable shares. Mr. Johnson serves as
a member
of the Board.
|
|
|
|
|
6
|
Consists
solely of shares of common stock issuable upon the exchange of
exchangeable shares. Verne Johnson, President and Sole Owner of
KristErin
Resources Inc. has the power to vote and invest the shares of common
stock
being registered on behalf of KristErin Resources Inc. Mr. Johnson
is a
member of the Board.
|
115
|
7
|
Includes
1,689,683 shares of common stock issuable upon the exchange of
exchangeable shares and 141,668 shares of common stock issuable
pursuant
to options exercisable within 60 days of November 15, 2007 and
40,000
shares of common stock issuable pursuant to warrants that Mr. Orunesu
has
the right to acquire within 60 days of November 15, 2007. Mr. Orunesu
is
the President of Gran Tierra Argentina, a subsidiary of Gran
Tierra.
|
|
8
|
Includes
1,689,683 shares of common stock issuable upon the exchange of
exchangeable shares and 175,001 shares of common stock issuable
pursuant
to options exercisable within 60 days of November 15, 2007 and
48,320
shares of common stock issuable pursuant to warrants exercisable
within 60
days of November 15, 2007. Dana Coffield serves as our President,
Chief
Executive Officer and as a member of the Board.
|
|
9
|
Includes
50,000 shares of common stock held by Mr. Coffield’s spouse. Mr. Coffield
disclaims beneficial ownership of 50,000 shares of common stock
held by
his spouse. M.C. Coffield is the father of Dana Coffield. Does
not include
shares held by Dana Coffield. See note 8.
|
|
10
|
Includes
1,689,683 shares of common stock issuable upon the exchange of
exchangeable shares, 141,668 shares of common stock issuable pursuant
to
options exercisable within 60 days of November 15, 2007 and 13,328
shares
of common stock issuable pursuant to warrants exercisable within
60 days
of November 15, 2007. Mr. Wei is our Vice President,
Operations.
|
|
11
|
Includes
1,689,683 shares of common stock issuable upon the exchange of
exchangeable shares and 54,167 shares of common stock pursuant
to options
or warrants exercisable within 60 days of November 15, 2007. Mr.
Hart was
formerly our Vice President, Finance, Chief Financial Officer and
a member
of the Board.
|
|
|
|
|
12
|
Consists
solely of shares of common stock issuable upon the exchange of
exchangeable shares.
|
|
|
|
|
13
|
Consists
solely of shares of common stock issuable upon the exchange of
exchangeable shares. J.G. Williams, President of Adeco Exploration
Company
Ltd., has the has the power to vote and invest the shares of common
stock
being registered on behalf of Adeco Exploration Company
Ltd.
|
|
|
|
|
14
|
Includes
25,000 shares of common stock beneficially held by a
relative.
|
|
15
|
Includes
158,730 shares of common stock issuable upon the exchange of exchangeable
shares and 129,365 shares of common stock issuable pursuant to
warrants
exercisable within 60 days of November 15, 2007.
|
|
16
|
Includes
79,365 shares of common stock issuable upon the exchange of exchangeable
shares and 37,487 shares of common stock issuable pursuant to warrants
exercisable within 60 days of November 15, 2007. Also includes
99,981
shares of common stock and 49,991 shares of common stock issuable
pursuant
to warrants exercisable within 60 days of November 15, 2007 beneficially
held by 893619 Alberta Ltd., of which Mr. Foster is the President
and
Director, and over which Mr. Foster has sole voting and investment
power.
|
|
|
|
|
17
|
Roger
Tang and Sue Tang have the power to vote and invest the shares
of common
stock being registered on behalf of The Roger Tang Family
Trust.
|
116
|
18
|
Consists
solely of shares of common stock issuable upon the exchange of
exchangeable shares. The shares are held in trust for Joseph Hocher
by
NBCN Clearing Inc. AC 41AU44E.
|
|
|
|
|
19
|
Includes
158,730 shares of common stock issuable upon the exchange of exchangeable
shares. The shares are held in trust for Soderglen Ranches Ltd.
by NBN
Clearing.
|
|
|
|
|
20
|
Includes
317,460 shares of common stock issuable upon the exchange of exchangeable
shares.
|
|
21
|
Includes
158,730 shares of common stock issuable upon the exchange of exchangeable
shares and 500,000 shares of common stock issuable pursuant to
warrants
that are exercisable within 60 days of November 15,
2007.
|
|
|
|
|
22
|
Includes
158,730 shares of common stock issuable upon the exchange of exchangeable
shares.
|
|
|
|
|
23
|
Consists
solely of shares of common stock issuable upon the exchange of
exchangeable shares. Peter Grut, the director of Argentiere Ltd.,
has the
power to vote and invest the shares of common stock being registered
on
behalf of Argentiere Ltd. Peter Grut disclaims beneficial ownership
of the
shares registered on behalf of Argentiere Ltd.
|
|
24
|
Ross
McMaster may be deemend to have the power to vote and invest the
common
shares being registered on behalf of 1110071 Ontario Inc. The shares
held
by 1110071 Ontario Inc. are held in trust for 1110071 Ontario Inc.
by
NBCN.
|
|
|
|
|
25
|
Consists
solely of shares of common stock issuable upon the exchange exchangeable
shares. Earle McMaster, the President and CEO of Slapco Ltd., may
be
deemed to have voting and investment power over the shares being
registered on behalf of Slapco Ltd.
|
|
|
|
|
26
|
The
shares are held in trust for Alexander Rowlands by
NCBN.
|
|
|
|
|
27
|
Ronald
Brimacombe may be deemed to have voting and investment power over
the
shares being registered on behalf of 411209 Alberta
Ltd.
|
|
28
|
Includes
158,730 shares of common stock issuable upon the exchange of exchangeable
shares and 50,000 shares of common stock issuable pursuant to warrants
exercisable within 60 days of November 15, 2007.
|
|
|
|
|
29
|
Includes
158,730 shares of common stock held in the name of Raymond Jones,
Ltd. in
trust for Frank Elliott.
|
|
30
|
Includes
79,365 shares of common stock issuable upon the exchange of exchangeable
shares and 137,500 shares of common stock issuable pursuant to
warrants
exercisable within 60 days of November 15, 2007. Glen Gurr, President
of
1053361 Alberta Ltd., and Rhonda Trueman, Vice President of 1053361
Alberta Ltd., have the power to vote and invest the shares registered
on
behalf of 1053361 Alberta Ltd.
|
|
31
|
Consists
solely of shares of common stock issuable upon the exchange of
exchangeable shares. The shares are held in trust for Donald MacDiarmid
by
NBCN Clearing Inc. AC 41AU44E.
|
|
32
|
Consists
solely of shares issuable upon the exercise of warrants issued
in
connection with the June 2006 private offering. This selling stockholder
is a broker-dealer.
|
|
33
|
Consists
solely of shares issuable upon the exercise of warrants issued
in
connection with the June 2006 private offering. This selling stockholder
is a broker-dealer, Mr. Ben Morris, Chief Executive Officer of
SMH Capital
Inc., has the power to vote and invest the shares registered on
behalf of
SMH Capital Inc.
|
|
34
|
Consists
solely of shares issuable upon the exercise of warrants issued
in
connection with the June 2006 private offering. This selling stockholder
is a broker-dealer. Mr. Brad Kotush, Chief Financial Officer of
Canaccord
Capital Corporation, has the power to vote and invest the shares
registered on behalf of Canaccord Capital Corporation.
|
117
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.
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.
|
118
|
(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.
119
|
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.
120
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.
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.
121
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.
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.
122
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.
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.
123
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.
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.
124
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, OTA LLC, Rob
Anderson, Deutsche Bank Securities, Inc., SMH capital Inc., and Canaccord
Capital Corporation 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.
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.
125
LEGAL
MATTERS
The
validity of the common stock being offered hereby has been passed upon by
Kummer
Kaempfer Bonner & Renshaw with respect to some of the shares, and
Mc
Guire
Woods LLP, New York, New York with respect to the remaining shares.
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
(which report expresses an unqualified opinion and includes an explanatory
paragraph relating to the restatement of the financial statements). 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 traded on the OTC Bulletin Board under the symbol “GTRE.OB.” 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.
126
GRAN
TIERRA ENERGY INC.
(FORMERLY
GOLDSTRIKE, INC.)
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
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-25
|
|
|
|
|
|
|
|
|
Financial
Statements for Argosy Energy International, LP as of March 31, 2006
and the period ended March 31, 2006 (Unaudited)
|
|
|
F-30
|
|
|
|
|
|
|
|
|
Statements
of Income
|
|
|
F-30
|
|
|
Balance
Sheets
|
|
|
F-31
|
|
|
Statements
of Cash Flows
|
|
|
F-32
|
|
|
Statements
of Partners’ Equity
|
|
|
F-33
|
|
|
Notes
to Financial Statements
|
|
|
F-34
|
|
|
|
|
|
|
|
|
Financial
Statements for Argosy Energy International, LP as of December 31,
2005 and 2004
|
|
|
F-48
|
|
|
|
|
|
|
|
|
Independent
Auditors’ Report
|
|
|
F-48
|
|
|
Statements
of Income
|
|
|
F-47
|
|
|
Balance
Sheets
|
|
|
F-50
|
|
|
Statements
of Cash Flows
|
|
|
F-51
|
|
|
Statements
of Partners’ Equity
|
|
|
F-52
|
|
|
Notes
to Financial Statements
|
|
|
F-53
|
|
|
|
|
|
|
|
|
Supplemental
Oil and Gas Information (unaudited)
|
|
|
F-69
|
|
|
Condensed
Consolidated Financial Statements for the three month periods ended
March
31, 2008 and 2007:
|
F-71
|
|||
|
Condensed
Consolidated Statements of Operations and Accumulated Deficit For
the
Three Month Periods Ended March 31, 2008 and 2007
|
F-71
|
|||
|
Condensed
Consolidated Balance Sheets at March 31, 2008 and December 31,
2007
|
F-72
|
|||
|
Condensed
Consolidated Statements of Cash Flows For the Three Month Periods
Ended
March 31, 2008 and 2007
|
F-73
|
|||
|
Condensed
Consolidated Statements of Shareholders’ Equity For the Three Month
Periods Ended March 31, 2008 and the Year Ended December 31,
2007
|
F-74
|
|||
|
Notes
to the Condensed Consolidated Financial Statements
|
F-75
|
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, stockholders' equity and cash flows for each of
the
two years then ended, and for 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.
As
discussed in Note 13, the accompanying 2007 and 2006 consolidated financial
statements have been restated. We therefore withdraw our previous report
dated
March 7, 2008 on those financial statements, as originally filed.
/s/
Deloitte & Touche LLP
Independent
Registered Chartered Accountants
Calgary,
Canada
March
7,
2008 (May 12, 2008 as to the effects of the restatement discussed in Note
13)
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
|
(As
Restated -see note 13)
|
(As
Restated -see note 13)
|
|
|||||||
|
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
|
2,808,420
|
6,639,230
|
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
|
8,761,439
|
2,010,056
|
(1,876,638
|
)
|
||||||
|
|
||||||||||
|
Investing
Activities
|
||||||||||
|
Restricted
cash
|
1,010,409
|
(1,020,490
|
)
|
(400,427
|
)
|
|||||
|
Oil
and gas property expenditures
|
(15,976,332
|
)
|
(10,274,139
|
)
|
(8,707,595
|
)
|
||||
|
Business
acquisition
|
—
|
(36,911,959
|
)
|
—
|
||||||
|
Long
term assets and liabilities
|
(426,782
|
)
|
—
|
—
|
||||||
|
|
||||||||||
|
Net
cash used in investing activities
|
(15,392,705
|
)
|
(48,206,588
|
)
|
(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
|
$
|
8,259,197
|
$
|
8,026,375
|
$
|
—
|
||||
(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.
Fair
value of financial instruments
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 SFAS 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 SFAS 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 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.
The
following tables present information on the Company’s reportable geographic
segments:
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
|
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
|
|||||
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
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.
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
|
||||
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
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.
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 10,
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.
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
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.
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 - $0.20)
F-17
Gran
Tierra Energy Inc.
Notes
to the Consolidated Financial Statements
For
the Years ended December 31, 2007 and 2006 and
For
the Period from Incorporation on January 26, 2005 to December 31,
2005
Expressed
in US dollars, unless otherwise stated
The
table
below summarizes stock options outstanding at December 31,
2007:
|
|
|
Number
of
|
|
Weighted
Average
|
|
Weighted
|
|
|||
|
|
|
Outstanding
|
|
Exercise
Price
|
|
Average
|
|
|||
|
Range
of Exercise Prices ($/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-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
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:
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
|
|
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
|
811,875
|
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
|
$
|
294,767
|
$
|
(677,380
|
)
|
$
|
(29,228
|
)
|
||
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
|
$
|
7,153,112
|
|||
|
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
|
|||
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
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.
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
|
$
|
7,984,841
|
$
|
222,934
|
$
|
8,259,197
|
$
|
—
|
$
|
2,504,661
|
$
|
5,521,714
|
$
|
8,026,375
|
|||||||||
|
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
|
—
|
4,898,008
|
730,876
|
5,628,884
|
—
|
5,317,958
|
—
|
5,317,958
|
|||||||||||||||||
|
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.
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
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).
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.
F-22
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
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.
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.
F-23
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
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.
13.
Restatement of Prior Period Financial Statements
The
Company has restated its consolidated financial statements for the years
ended
December 31, 2007 and 2006 and unaudited quarterly financial information
for each of the quarters ended March 31, 2007, June 30, 2007 and September
30,
2007. In the course of preparing the Company’s interim financial statements for
the quarterly report on Form 10-Q to be filed with the SEC for the quarter
ended
March 31, 2008, the Company discovered a misclassification of accounts payable
and accrued liabilities in the 2007 interim financial statements for the
previously reported quarters ended March 31, 2007, June 30, 2007 and September
30, 2007, and annual financial statements for the years ended December 31,
2006
and 2007 (collectively, the “Affected Financial Statements”). The
misclassification resulted in a misstatement of cash flows from operating
activities, with a corresponding offset to cash flows from investing activities.
The restatements in the Affected Financial Statements had no effect on the
Company’s previously reported net change in cash and cash equivalents and no
impact on the Company’s previously reported consolidated balance sheets or
consolidated statements of operations and accumulated deficit contained in
the
Affected Financial Statements.
F-24
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 table presents the impact of the error on previously reported
amounts:
|
|
Year
Ended December 31, 2007
|
|
||||||||
|
|
|
As
Previously Stated
|
Increase
(Decrease)
|
|
As
Restated
|
|||||
|
Net
change in non-cash working capital
|
||||||||||
|
Accounts
payable and accrued liabilities
|
$
|
261,658
|
$
|
2,546,762
|
$
|
2,808,420
|
||||
|
|
||||||||||
|
Net
cash provided (used in) operating activities
|
$
|
6,214,677
|
$
|
2,546,762
|
$
|
8,761,439
|
||||
|
|
||||||||||
|
Oil
and gas property expenditures
|
$
|
(13,429,570
|
)
|
$
|
(2,546,762
|
)
|
$
|
(15,976,332
|
)
|
|
|
Net
cash used in investing activities
|
$
|
(12,845,943
|
)
|
$
|
(2,546,762
|
)
|
$
|
(15,392,705
|
)
|
|
|
|
Year
Ended December 31, 2006
|
|||||||||
|
|
As
Previously Stated
|
Increase
(Decrease)
|
As
Restated
|
|||||||
|
Net
change in non-cash working capital
|
|
|
|
|||||||
|
Accounts
payable and accrued liabilities
|
$
|
3,799,554
|
$
|
2,839,676
|
$
|
6,639,230
|
||||
|
|
||||||||||
|
Net
cash provided (used in) operating activities
|
$
|
(829,620
|
)
|
$
|
2,839,676
|
$
|
2,010,056
|
|||
|
|
||||||||||
|
Oil
and gas property expenditures
|
$
|
(7,434,463
|
)
|
$
|
(2,839,676
|
)
|
$
|
(10,274,139
|
)
|
|
|
Net
cash used in investing activities
|
$
|
(45,366,912
|
)
|
$
|
(2,839,676
|
)
|
$
|
(48,206,588
|
)
|
|
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 7 for a
description of Gran Tierra Energy’s reserves estimation process.
F-25
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.
|
|
|
|
|
|
(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.
|
F-26
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-27
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-28
|
December 31,
2005
|
Argentina
|
Colombia
|
Total
|
|||||||
|
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-29
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-30
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-31
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-32
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’ |
|
Total partners’ |
||||||
|
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-33
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-34
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-35
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-36
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-37
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-38
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-39
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-40
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, 2006 |
December
31, 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, 2006 |
December
31, 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, 2006 |
December
31, 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-41
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-42
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, 2006 |
|
March
31, 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:
|
|
Stockholder
|
March
31, 2006 |
December
31, 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-43
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, 2006 |
March
31, 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-44
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements (Unaudited)
|
March
31, 2006
|
March
31, 2006
|
||||||||||||||||||
|
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, 2006 |
December
31, 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-45
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-46
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:
|
Partner
|
Interest
|
Type
of 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-47
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-48
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-49
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-50
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-51
Statements
of Partners’ Equity
Years
ended December 31, 2005 and 2004
(Expressed
in thousands of US dollars)
|
Limited partners’ |
General partners’ |
Total partners’ |
||||||||
|
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-52
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-53
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-54
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-55
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-56
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-57
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-58
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-59
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-60
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
Capitalized
Cost Unproved
Excluded
From the Capitalized Cost Being Amortized
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
Month
|
|||||||||||||||
|
|
|
|
|
|
|
|
Anticipated
|
|||||||||||||||
|
|
|
|
|
|
|
|
to
be
|
|||||||||||||||
|
|
|
|
Exploration
|
|
|
included
|
||||||||||||||||
|
|
|
|
Cost
|
Cost
Incurred
|
in
|
|||||||||||||||||
|
AFE
|
Contract
|
Detail
|
Dec-04
|
Dec-05
|
2004
|
2005
|
Amortization
|
|||||||||||||||
|
MARY
WELLWEST
PROSPECT
|
Santana
|
Geological
&
Geophysical
Data
|
287
|
287
|
287
|
Dec-06
|
||||||||||||||||
|
MARY
WEST WELL
TESTING
|
Santana
|
Geological
&
Geophysical
Data
|
93
|
93
|
93
|
Dec-06
|
||||||||||||||||
|
EXPL.
100% NEW PROJECTS
|
New
Projects
|
Geological
&
Geophysical
Data
|
253
|
363
|
253
|
110
|
Dec-06
|
|||||||||||||||
|
EXPL.
100% SANTANA
|
Guayuyaco
|
Geological
&
Geophysical
Data
|
1,044
|
1,044
|
1,044
|
Dec-06
|
||||||||||||||||
|
EXPL.
100% RIO MAGDALENA
|
Rio
Magdalena
|
Sesimic
Program
|
634
|
808
|
634
|
174
|
Mar-07
|
|||||||||||||||
|
TALORA
PROJECT
|
Talora
|
Seismic
Program
|
1
|
89
|
1
|
88
|
Sep-07
|
|||||||||||||||
|
SEISMIC
GUAYUYACO
|
Guayuyaco
|
Seismic
Program
|
0
|
431
|
431
|
Dec-06
|
||||||||||||||||
|
SEISMIC
CHAZA
|
Chaza
|
Seismic
Program
|
0
|
505
|
505
|
Sep-07
|
||||||||||||||||
|
POPA-1
WELL
EXPLORATORY
|
Rio
Magdalena
|
Road
and Location
Well
|
0
|
0
|
Mar-07
|
|||||||||||||||||
|
JUANAMBU-1
WELL
EXPLORATORY
|
Guayuyaco
|
Road
and Location
Well
|
0
|
2
|
2
|
Jun-07
|
||||||||||||||||
|
|
0
|
|||||||||||||||||||||
|
Total
Unproved
Exploration
Costs
|
2,312
|
3,622
|
2,312
|
1,310
|
||||||||||||||||||
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-61
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:
|
Partner
|
Interest
|
Type
of 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-62
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-63
ARGOSY
ENERGY INTERNATIONAL, LP
Notes
to
Financial Statements
(8)
Equity
Stockholders’
Capital
The
following is a detail of the stockholders’ participation in the
capital:
|
Stockholders
|
2005
%
|
2004
%
|
|||||
|
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-64
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
|
2004
|
||||||||||||
|
Basis
Amount %
|
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-65
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-66
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-67
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-68
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-69
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-70
Gran
Tierra Energy Inc.
Condensed
Consolidated Statements of Operations and Accumulated
Deficit
(Unaudited)
For
the Three Month Periods Ended March 31, 2008 and 2007
|
Three Months Ended March 31,
|
|||||||
|
2008
|
2007
|
||||||
|
(Expressed in Thousands of U.S. dollars, except
share data amounts)
|
|||||||
|
REVENUE
AND OTHER INCOME
|
|||||||
|
Oil
sales
|
$
|
20,749
|
$
|
4,276
|
|||
|
Natural
gas sales
|
-
|
48
|
|||||
|
Interest
|
70
|
193
|
|||||
|
|
20,819
|
4,517
|
|||||
|
EXPENSES
|
|||||||
|
Operating
|
2,527
|
2,181
|
|||||
|
Depletion,
depreciation and accretion
|
3,064
|
2,324
|
|||||
|
General
and administrative
|
4,133
|
1,939
|
|||||
|
Liquidated
damages (Note 5)
|
-
|
4,132
|
|||||
|
Derivative
financial instruments (Note 10)
|
1,184
|
657
|
|||||
|
Foreign
exchange loss
|
14
|
232
|
|||||
|
|
10,922
|
11,465
|
|||||
|
|
|||||||
|
INCOME
(LOSS) BEFORE INCOME TAX
|
9,897
|
(6,948
|
)
|
||||
|
Income
tax (Note 7)
|
(5,221
|
)
|
298
|
||||
|
|
|||||||
|
NET
INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
|
$
|
4,676
|
$
|
(6,650
|
)
|
||
|
|
|||||||
|
ACCUMULATED
DEFICIT, beginning of period
|
(16,511
|
)
|
(8,044
|
)
|
|||
|
ACCUMULATED
DEFICIT, end of period
|
$
|
(11,835
|
)
|
$
|
(14,694
|
)
|
|
|
|
|||||||
|
NET
INCOME (LOSS) PER COMMON SHARE — BASIC (Note 5)
|
0.05
|
(0.07
|
)
|
||||
|
|
|||||||
|
NET
INCOME (LOSS) PER COMMON SHARE — DILUTED (Note 5)
|
0.04
|
(0.07
|
)
|
||||
|
|
|||||||
|
Weighted
average common shares outstanding — basic
|
96,984,978
|
95,455,765
|
|||||
|
|
|||||||
|
Weighted
average common shares outstanding — diluted
|
119,127,570
|
95,455,765
|
|||||
(See
notes to the consolidated financial statements)
F-71
Gran
Tierra Energy Inc.
Condensed
Consolidated Balance Sheets (Unaudited)
|
March 31,
|
December 31,
|
||||||
|
2008
|
2007
|
||||||
|
(Expressed in Thousands of U.S. dollars)
|
|||||||
|
ASSETS
|
|||||||
|
Current
assets
|
|||||||
|
Cash
and cash equivalents
|
$
|
26,024
|
$
|
18,189
|
|||
|
Accounts
receivable
|
22,884
|
10,695
|
|||||
|
Inventory
|
573
|
787
|
|||||
|
Taxes
receivable
|
1,429
|
1,177
|
|||||
|
Prepaids
|
528
|
442
|
|||||
|
Deferred
tax asset (Note 7)
|
987
|
220
|
|||||
|
Total
Current Assets
|
52,425
|
31,510
|
|||||
|
Oil
and gas properties, using the full cost method of
accounting
|
|||||||
|
Proved
|
44,057
|
44,292
|
|||||
|
Unproved
|
25,242
|
18,910
|
|||||
|
Total
Oil and Gas Properties
|
69,299
|
63,202
|
|||||
|
Other
assets
|
809
|
716
|
|||||
|
Total
Property, Plant and Equipment (Note 4)
|
70,108
|
63,918
|
|||||
|
Long
term assets
|
|||||||
|
Deferred
tax asset (Note 7)
|
981
|
1,839
|
|||||
|
Taxes
receivable
|
532
|
525
|
|||||
|
Goodwill
|
15,005
|
15,005
|
|||||
|
Total
Long Term Assets
|
16,518
|
17,369
|
|||||
|
Total
Assets
|
$
|
139,051
|
$
|
112,797
|
|||
|
|
|||||||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
|
Current
liabilities
|
|||||||
|
Accounts
payable (Note 8)
|
$
|
18,017
|
$
|
11,327
|
|||
|
Accrued
liabilities (Note 8)
|
7,862
|
6,139
|
|||||
|
Derivative
financial instruments (Note 10)
|
2,042
|
1,594
|
|||||
|
Current
taxes payable
|
9,314
|
3,284
|
|||||
|
Deferred
tax liability (Note 7)
|
736
|
1,108
|
|||||
|
Total
Current Liabilities
|
37,971
|
23,452
|
|||||
|
Long
term liabilities
|
131
|
132
|
|||||
|
Deferred
tax liability (Note 7)
|
9,992
|
9,235
|
|||||
|
Deferred
remittance tax (Note 7)
|
1,477
|
1,332
|
|||||
|
Derivative
financial instruments (Note 10)
|
1,300
|
1,055
|
|||||
|
Asset
retirement obligation (Note 6)
|
900
|
799
|
|||||
|
Total
Long Term Liabilities
|
13,800
|
12,553
|
|||||
|
Shareholders’
equity
|
|||||||
|
Common
shares (Note 5)
|
107
|
95
|
|||||
|
(88,160,868
and 80,389,676 common shares and 11,827,776 and 14,787,303 exchangeable
shares, par value $0.001 per share, issued and outstanding as
at March 31,
2008 and December 31, 2007, respectively)
|
|||||||
|
Additional
paid in capital
|
81,210
|
72,458
|
|||||
|
Warrants
|
17,798
|
20,750
|
|||||
|
Accumulated
deficit
|
(11,835
|
)
|
(16,511
|
)
|
|||
|
Total
Shareholders’ Equity
|
87,280
|
76,792
|
|||||
|
Total
Liabilities and Shareholders’ Equity
|
$
|
139,051
|
$
|
112,797
|
|||
(See
notes to the consolidated financial statements)
F-72
Gran
Tierra Energy Inc.
Condensed
Consolidated Statements of Cash Flows (Unaudited)
For
the Three Month Periods Ended March 31, 2008 and 2007
|
Period Ended March 31,
|
|||||||
|
2008
|
2007
|
||||||
|
(Expressed in Thousands of U.S. dollars)
|
|||||||
|
(restated -
see note
2)
|
|||||||
|
Operating
Activities
|
|||||||
|
Net
income (loss)
|
$
|
4,676
|
$
|
(6,650
|
)
|
||
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|||||||
|
Depletion,
depreciation and accretion
|
3,064
|
2,324
|
|||||
|
Deferred
tax
|
1,760
|
1,358
|
|||||
|
Stock
based compensation
|
448
|
150
|
|||||
|
Unrealized
loss on derivative financial instruments
|
693
|
657
|
|||||
|
Net
changes in non-cash working capital
|
|||||||
|
Accounts
receivable
|
(12,189
|
)
|
(2,780
|
)
|
|||
|
Inventory
|
214
|
259
|
|||||
|
Prepaids
and other current assets
|
(86
|
)
|
47
|
||||
|
Deferred
tax asset
|
(767
|
)
|
—
|
||||
|
Accounts
payable and accrued liabilities
|
5,934
|
2,507
|
|||||
|
Taxes
receivable and payable
|
5,778
|
(780
|
)
|
||||
|
Deferred
tax liability
|
(372
|
)
|
—
|
||||
|
|
|||||||
|
Net
cash provided (used) by operating activities
|
9,153
|
(2,908
|
)
|
||||
|
Investing
Activities
|
|||||||
|
Oil
and gas property expenditures
|
(6,530
|
)
|
(8,892
|
)
|
|||
|
Long
term assets and liabilities
|
(8
|
)
|
3
|
||||
|
Net
cash used in investing activities
|
(6,538
|
)
|
(8,889
|
)
|
|||
|
Financing
Activities
|
|||||||
|
Restricted
cash
|
—
|
1,010
|
|||||
|
Proceeds
from issuance of common stock
|
5,220
|
—
|
|||||
|
Net
cash provided by financing activities
|
5,220
|
1,010
|
|||||
|
Net
(decrease) increase in cash and cash equivalents
|
7,835
|
(10,787
|
)
|
||||
|
Cash
and cash equivalents, beginning of period
|
18,189
|
24,101
|
|||||
|
|
|||||||
|
Cash
and cash equivalents, end of period
|
$
|
26,024
|
$
|
13,314
|
|||
|
|
|||||||
|
Non-cash
investing activities:
|
|||||||
|
Non-cash
working capital related to capital additions
|
$
|
10,739
|
$
|
4,275
|
|||
(See
notes to the consolidated financial statements)
F-73
Gran
Tierra Energy Inc.
Condensed
Consolidated Statements of Shareholders’ Equity
(Unaudited)
For
the Three Month Periods Ended March 31, 2008 and the Year Ended December
31,
2007
|
|
|
Three Months Ended
March 31, 2008
|
|
Year Ended
December 31, 2007
|
|||
|
(Expressed
in Thousands of U.S. dollars)
|
|||||||
|
Share
Capital
|
|||||||
|
Balance
beginning of period
|
$
|
95
|
$
|
95
|
|||
|
Issue
of common shares
|
12
|
1
|
|||||
|
Cancelled
common shares
|
-
|
(1
|
)
|
||||
|
|
|||||||
|
Balance
end of period
|
$
|
107
|
$
|
95
|
|||
|
|
|||||||
|
Additional
Paid-in-Capital
|
|||||||
|
Balance
beginning of period
|
$
|
72,458
|
$
|
71,311
|
|||
|
Cancelled
common shares
|
-
|
(1,086
|
)
|
||||
|
Issue
of common shares
|
5,156
|
719
|
|||||
|
Exercise
of warrants
|
2,952
|
513
|
|||||
|
Exercise
of stock options
|
52
|
-
|
|||||
|
Stock
based compensation expense
|
592
|
1,001
|
|||||
|
|
|||||||
|
Balance
end of period
|
$
|
81,210
|
$
|
72,458
|
|||
|
|
|||||||
|
Warrants
|
|||||||
|
Balance
beginning of period
|
$
|
20,750
|
$
|
12,832
|
|||
|
Cancelled
warrants
|
-
|
(233
|
)
|
||||
|
Issue
of warrants
|
-
|
8,625
|
|||||
|
Exercise
of warrants
|
(2,952
|
)
|
(474
|
)
|
|||
|
|
|||||||
|
Balance
end of period
|
$
|
17,798
|
$
|
20,750
|
|||
|
Accumulated
Deficit
|
|||||||
|
Balance
beginning of period
|
$
|
(16,511
|
)
|
$
|
(8,044
|
)
|
|
|
Net
income (loss)
|
4,676
|
(8,467
|
)
|
||||
|
|
|||||||
|
Balance
end of period
|
$
|
(11,835
|
)
|
$
|
(16,511
|
)
|
|
|
|
|||||||
|
otal
Shareholders’ Equity
|
$
|
87,280
|
$
|
76,792
|
|||
(See
notes to the consolidated financial statements)
F-74
Gran
Tierra Energy Inc.
Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
Expressed
in Thousands of US Dollars, Except Share Amounts, 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
and
development of oil and natural gas properties and the production of oil and
natural gas. The Company’s principal business activities are in Argentina,
Colombia and Peru.
2.
Significant Accounting Policies
These
interim unaudited 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 interim consolidated financial statements,
and
revenues and expenses during the reporting period. In the opinion of the
Company’s management, all adjustments (all of which are normal and recurring)
that have been made are necessary to fairly state the consolidated financial
position of the Company and its subsidiaries as at March 31, 2008, the results
of its operations and cash flows for the three month periods ended March
31,
2008 and 2007.
The
note
disclosure requirements of annual consolidated financial statements provide
additional disclosures to that required for interim consolidated financial
statements. Accordingly, these interim consolidated financial statements
should
be read in conjunction with the Company’s consolidated financial statements as
at and for the year ended December 31, 2007 included in this prospectus.
The
Company’s significant accounting policies are described in note 2 of the
consolidated financial statements which are included in this
prospectus.
Inventory
Crude
oil
inventories at March 31, 2008 and December 31, 2007 are $0.5 million and
$0.4
million, respectively. Supplies at March 31, 2008 and December 31, 2007 are
$0.1
million and $0.4 million, respectively.
New
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157 “Fair Value
Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework
for measuring fair value under US GAAP and expands disclosures about fair
value
measurements. This statement is effective for fiscal years beginning after
November 15, 2007. In February 2008, the FASB issued FASB FSP 157-2 which
delays the effective date of SFAS 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at
fair
value in the financial statements on a recurring basis (at least annually),
until fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years. These nonfinancial items include assets and
liabilities such as reporting units measured at fair value in a goodwill
impairment test, asset retirement obligations and nonfinancial assets acquired
and liabilities assumed in a business combination. Effective January 1,
2008, the Company adopted SFAS 157 for financial assets and liabilities.
The partial adoption of SFAS 157 for financial assets and liabilities did
not have a material impact on the Company’s consolidated financial position,
results of operations or cash flows. See Note 10 for information and
related disclosures.
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 and was adopted January 1, 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 adoption of SFAS 159 on January 1, 2008 did not impact the
Company’s consolidated financial position, results of operations or cash
flows.
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 the Company’s consolidated financial statements, if
any, upon adoption of SFAS 141 (R) or SFAS No. 160.
F-75
In
March
2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments
and Hedging Activities”. SFAS 161 requires companies with derivative
instruments to disclose information that should enable financial-statement
users
to understand how and why a company uses derivative instruments, how derivative
instruments and related hedged items are accounted for under SFAS 133,
Accounting for Derivative Instruments and Hedging Activities and how derivative
instruments and related hedged items affect a company's financial position,
financial performance and cash flows. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company is currently evaluating the impact, if any,
that SFAS 161 will have on its consolidated financial
statements.
Restatement
of Prior Year Financial Statements
Subsequent
to the release of financial statements for the year ended December 31, 2007
the
Company determined that $3.7 million of changes in its accounts payable and
accrued liabilities, initially attributed to net cash provided by (used in)
operating activities should have been attributed to oil and gas property
expenditures and net cash used in investing activities (see note 8).
Accordingly, line items in the statements of cash flows for the three month
period ended March 31, 2007 have been restated.
Net
changes in non-cash working capital related to accounts payable and accrued
liabilities for the three month period ended March 31, 2007 have been restated
to an increase of $2.5 million from an increase of $6.2 million, and net
cash
provided by (used in) operating activities has been restated to a use of
2.9
million from $0.8 million cash flow provided by operating activities. The
change
in non-cash working capital related to capital additions has been restated
to a
decrease of $3.8 million from a decrease of $7.5 million, cash used for oil
and
gas property expenditures (including the change in non-cash working capital
related to capital additions) has been restated to $8.9 million from $12.6
million and net cash used in investing activities has been restated to $8.9
million from $12.6 million.
The
preceding restatement has no effect on the net increase or decrease in cash
or
cash equivalents for any period.
3.
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 derivative financial instrument gains and losses and income
taxes.
The
following tables present information on the Company’s reportable geographic
segments:
|
Three Months Ended March 31, 2008
|
|||||||||||||
|
Corporate
|
|
Colombia
|
|
Argentina
|
|
Total
|
|||||||
|
Revenues
|
$
|
—
|
$
|
19,365
|
$
|
1,384
|
$
|
20,749
|
|||||
|
Interest income
|
3
|
62
|
5
|
70
|
|||||||||
|
Depreciation,
depletion & accretion
|
30
|
2,467
|
567
|
3,064
|
|||||||||
|
Segment
income (loss) before income tax
|
(3,697
|
)
|
14,267
|
(673
|
)
|
9,897
|
|||||||
|
Segment
capital expenditures
|
$
|
589
|
$
|
8,149
|
$
|
416
|
$
|
9,154
|
|||||
|
Three
Months Ended March 31,
2007
|
|||||||||||||
|
Corporate
|
Colombia
|
|
Argentina
|
|
Total
|
||||||||
|
Revenues
|
$
|
—
|
$
|
2,188
|
$
|
2,136
|
$
|
4,324
|
|||||
|
Interest
income
|
99
|
94
|
-
|
193
|
|||||||||
|
Depreciation,
depletion & accretion
|
25
|
1,824
|
475
|
2,324
|
|||||||||
|
Segment
loss before income tax
|
(5,975
|
)
|
(430
|
)
|
(543
|
)
|
(6,948
|
)
|
|||||
|
Segment
capital expenditures
|
$
|
439
|
$
|
3,827
|
$
|
875
|
$
|
5,141
|
|||||
F-76
|
As
at March 31, 2008
|
|||||||||||||
|
Corporate
|
Colombia
|
Argentina
|
Total
|
||||||||||
|
Property,
plant & equipment
|
$
|
1,589
|
$
|
49,413
|
$
|
19,106
|
$
|
70,108
|
|||||
|
Goodwill
|
—
|
15,005
|
—
|
15,005
|
|||||||||
|
Other
assets
|
16,567
|
31,250
|
6,121
|
53,938
|
|||||||||
|
Total
|
$
|
18,156
|
$
|
95,668
|
$
|
25,227
|
$
|
139,051
|
|||||
|
As
at December 31, 2007
|
|||||||||||||
|
Corporate
|
|
Colombia
|
|
Argentina
|
|
Total
|
|||||||
|
Property,
plant & equipment
|
$
|
1,031
|
$
|
43,639
|
$
|
19,248
|
$
|
63,918
|
|||||
|
Goodwill
|
—
|
15,005
|
—
|
15,005
|
|||||||||
|
Other
assets
|
11,303
|
15,949
|
6,622
|
33,874
|
|||||||||
|
Total
|
$
|
12,334
|
$
|
74,593
|
$
|
25,870
|
$
|
112,797
|
|||||
The
Company’s revenues are derived principally from uncollateralized 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 2008, 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.
4.
Property, Plant and Equipment
|
As at March 31, 2008
|
As at December 31, 2007
|
||||||||||||||||||
|
Accumulated
|
Net Book
|
Accumulated
|
Net Book
|
||||||||||||||||
|
Cost
|
DD&A
|
Value
|
Cost
|
DD&A
|
Value
|
||||||||||||||
|
Oil
and natural gas properties
|
|||||||||||||||||||
|
Proved
|
$
|
60,578
|
$
|
(16,521
|
)
|
$
|
44,057
|
$
|
57,832
|
$
|
(13,540
|
)
|
$
|
44,292
|
|||||
|
Unproved
|
25,242
|
-
|
25,242
|
18,910
|
-
|
18,910
|
|||||||||||||
|
Furniture
and fixtures
|
847
|
(538
|
)
|
309
|
815
|
(560
|
)
|
255
|
|||||||||||
|
Computer
equipment
|
812
|
(384
|
)
|
428
|
719
|
(299
|
)
|
420
|
|||||||||||
|
Automobiles
|
109
|
(37
|
)
|
72
|
72
|
(31
|
)
|
41
|
|||||||||||
|
Total
capital assets
|
$
|
87,588
|
$
|
(17,480
|
)
|
$
|
70,108
|
$
|
78,348
|
$
|
(14,430
|
)
|
$
|
63,918
|
|||||
As
at
March 31, 2008, the Company has capitalized $0.4 million (December 31, 2007
-
$1.7 million) of general and administrative expenses including $0.1 million
(December 31, 2007 - $0.1 million) of stock-based compensation expense for
the
Colombian full cost center. Also included is $0.1 million (December 31, 2007
-
$0.2 million) of general and administrative expenses in the Argentina full
cost
center which includes $0.1 million (December 31, 2007 - $0.1 million) of
stock-based compensation.
The
unproven oil and natural gas properties at March 31, 2008 consist of exploration
lands held in Colombia, Argentina and Peru. The Company has $20.5 million
(December 31, 2007 - $15.1 million) in unproved assets in Colombia,
$3.5 million (December 31, 2007 - $3.1 million) of unproved assets in
Argentina and $1.2 million (December 31, 2007 - $0.7 million) of unproved
assets
in Peru. These properties are being held for their exploration potential
and are
not being depleted pending determination of the 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.
5.
Share Capital
The
Company’s authorized share capital consists of 325,000,001 shares of 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, and 1 share designated as special voting stock, par value
$0.001 per share. Outstanding share capital at March 31, 2008, consists of
88,160,868 common voting shares of the Company and 11,827,776 exchangeable
shares of Goldstrike Exchange Co., a wholly-owned subsidiary of Gran Tierra
Energy. 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-77
Warrants
At
March
31, 2008, the Company had two remaining issues of warrants outstanding at
March
31, 2008: 12,578,898 warrants outstanding to purchase 6,289,449 common shares
at
an exercise price of $1.25 per share expiring between August 2010 and January
2011: and 45,781,172 warrants outstanding to purchase 22,890,586 common shares
at an exercise price of $1.05 per share expiring June 2012. For the three
months
ended March 31, 2008, 4,737,501 common shares were issued upon the exercise
of
9,475,002 warrants (March 31, 2007 - nil).
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 United States Securities and Exchange Commission (“SEC”) by
specified dates, the Company was required to pay liquidated damages to the
purchasers of the shares and warrants.
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 exercisable 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 at which time
the
Company had accrued $8.6 million in liquidated damages. 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. As of March 31, 2007, the Company had accrued $5.4 million of
liquidated damages of which $4.1 million was recorded in the first three
months
of 2007 and $1.3 million in 2006.
Stock
Options
As
of
March 31, 2008, 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. For the three months ended March 31, 2008, 74,167 common shares
were issued upon the exercise of 74,167 stock options (March 31, 2007 -
nil). The following options are outstanding as of March 31, 2008:
F-78
|
Number of Outstanding |
Weighted Average Exercise Price |
||||||
|
Outstanding,
December 31, 2007
|
5,724,168
|
$
|
1.52
|
||||
|
Granted
in 2008
|
200,000
|
$
|
3.50
|
||||
|
Exercised
in 2008
|
(74,167
|
)
|
$
|
(0.80
|
)
|
||
|
Forfeited
in 2008
|
(198,336
|
)
|
$
|
(1.73
|
)
|
||
|
Outstanding,
March 31, 2008
|
5,651,665
|
$
|
1.59
|
The
weighted average grant date fair value for options granted in 2008 was
$2.05.
The
table
below summarizes stock options outstanding at March 31, 2008:
|
Number of
|
Weighted Average
|
Weighted
|
||||||||
|
Outstanding
|
Exercise Price
|
Average
|
||||||||
|
Range of exercise prices ($/option)
|
Options
|
$/Option
|
Expiry Years
|
|||||||
|
$0.80
|
1,225,277
|
$
|
0.80
|
7.5
|
||||||
|
$1.19
to $1.29
|
1,813,888
|
$
|
1.26
|
8.7
|
||||||
|
$1.72
|
385,000
|
$
|
1.72
|
9.6
|
||||||
|
$2.14
|
2,027,500
|
$
|
2.14
|
9.7
|
||||||
|
$3.50
|
200,000
|
$
|
3.50
|
10.0
|
||||||
|
Total
|
5,651,665
|
$
|
1.59
|
8.9
|
The
aggregate intrinsic value of options outstanding at March 31, 2008 is $9.8
million based on the Company’s closing stock price of $3.32 for that date. At
March 31, 2008, there was $2.7 million of unrecognized compensation cost
related
to unvested stock options which is expected to be recognized over the next
three
years.
For
the
three months ended March 31, 2008, the stock-based compensation expense was
$0.6
million (March 31, 2007 - $0.1 million) of which $0.3 million (March 31,
2007-
$0.1 million) has been recorded in general and administrative expense and
$0.1
million has been recorded in operating expense in the consolidated statement
of
operations. For the three months ended March 31, 2008, $0.2 million was
capitalized as part of exploration and development costs.
The
fair
value of each stock option award is estimated on the date of grant using
the
Black-Scholes option pricing model based on assumptions noted in the following
table. The Company uses historical data to estimate option exercises, expected
term and employee departure behavior used in the Black-Scholes option pricing
model. Expected volatilities used in the fair value estimate are based on
historical volatility of the Company’s stock. The risk-free rate for periods
within the contractual term of the stock options is based on the U.S. Treasury
yield curve in effect at the time of grant.
|
Three
Months Ended March 31,
|
|||||||
|
2008
|
|
2007
|
|||||
|
Dividend
yield ($ per share)
|
$
|
nil
|
$
|
nil
|
|||
|
Volatility
(%)
|
74.6%
to 91.5
|
%
|
103.5
|
%
|
|||
|
Risk-free
interest rate (%)
|
2.05
|
%
|
5.06
|
%
|
|||
|
Expected
term (years)
|
3
years
|
3
years
|
|||||
|
Forfeiture
percentage (% per year)
|
10
|
%
|
10
|
%
|
|||
F-79
Weighted
average shares outstanding
|
|
Three months ended March 31, 2008
|
||||||
|
Weighted-average number
of common shares outstanding
|
|
96,984,978
|
|||||
|
Shares
issuable pursuant to stock options
|
|
5,451,665
|
|||||
|
Shares
issuable pursuant to warrants
|
|
29,180,035
|
|||||
|
Shares
to be purchased from proceeds of stock options and
warrants
|
|
(12,489,108
|
)
|
||||
|
Weighted-average
number of diluted common shares outstanding
|
|
119,127,570
|
|||||
Income
(loss) per share
For
the
three month period ended March 31, 2008, options to purchase 200,000 common
shares were excluded from the diluted income per share calculation as the
instruments were anti-dilutive. For the three month period ended March 31,
2007,
options to purchase 3,240,000 common shares and 70,313,830 warrants to purchase
35,156,915 common shares were excluded from the diluted loss per share
calculation as the instruments were anti-dilutive.
6.
Asset Retirement Obligation
Changes
in the carrying amounts of the asset retirement obligation associated with
the
Company’s oil and natural gas properties are as follows:
|
Three Months Ended March 31, 2008
|
Year Ended December 31, 2007
|
||||||
|
Balance, beginning of period
|
$
|
799
|
$
|
595
|
|||
|
Liability incurred
|
56
|
154
|
|||||
|
Foreign
exchange
|
30
|
19
|
|||||
|
Accretion
|
15
|
31
|
|||||
|
Balance,
end of period
|
$
|
900
|
$
|
799
|
7.
Income Taxes
The
Company has accumulated losses of approximately $16.0 million that can be
carried forward and applied against future taxable income. A valuation allowance
of $3.3 million has been taken for the potential income tax benefit associated
with the losses incurred by the Company, due to uncertainty of utilization
of
the tax losses.
The
income tax expense (recovery) reported differs from the amount computed by
applying the statutory rate to income (loss) before income taxes for the
following reasons:
|
|
Three Months Ended March 31,
|
||||||
|
|
2008
|
2007
|
|||||
|
Income (loss)
before income taxes
|
$
|
9,897
|
$
|
(6,948
|
)
|
||
|
|
32.12
|
%
|
34
|
%
|
|||
|
Income
tax benefit expected
|
3,179
|
(2,362
|
)
|
||||
|
Benefit
of tax losses not recognized
|
161
|
1,914
|
|||||
|
Impact
of tax rate changes on future tax balances
|
124
|
-
|
|||||
|
Impact
of foreign taxes
|
3,508
|
-
|
|||||
|
Enhanced
tax depreciation incentive
|
(545
|
)
|
-
|
||||
|
Stock-based
compensation
|
83
|
150
|
|||||
|
Non-deductible
items
|
34
|
-
|
|||||
|
Previously
unrecognized tax assets
|
(1,323
|
)
|
-
|
||||
|
Total
income tax expense (recovery)
|
$
|
5,221
|
$
|
(298
|
)
|
||
F-80
Deferred
tax assets and liabilities consist of the following temporary
differences:
|
|
March
31, 2008
|
December
31, 2007
|
|||||
|
Deferred
tax assets
|
|
|
|||||
|
Tax
benefit of loss carryforwards
|
$
|
2,823
|
$
|
4,935
|
|||
|
Book
value in excess of tax basis
|
-
|
75
|
|||||
|
Foreign
tax credits and other accruals
|
987
|
733
|
|||||
|
Capital
losses
|
1,478
|
1,063
|
|||||
|
Deferred
tax assets before valuation allowance
|
5,288
|
6,806
|
|||||
|
Valuation
allowance
|
(3,320
|
)
|
(4,747
|
)
|
|||
|
|
$
|
1,968
|
$
|
2,059
|
|||
|
|
|||||||
|
Deferred
tax asset - current
|
$
|
987
|
$
|
220
|
|||
|
Deferred
tax asset - long-term
|
981
|
1,839
|
|||||
|
|
$
|
1,968
|
$
|
2,059
|
|||
|
|
|||||||
|
Deferred
tax liabilities
|
|||||||
|
Current -
book value in excess of tax basis
|
$
|
736
|
$
|
1,108
|
|||
|
Long-term
- book value in excess of tax basis
|
9,992
|
9,235
|
|||||
|
Book
value in excess of tax basis
|
$
|
10,728
|
$
|
10,343
|
|||
|
|
|||||||
|
Net
deferred tax liabilities
|
$
|
8,760
|
$
|
8,284
|
|||
The
Company calculated 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 March 31, 2008 is $1.5
million (December 31, 2007 - $1.3 million).
On
January 1, 2007, the Company adopted the provisions of FIN 48 however there
was
no impact on the opening accumulated deficit of the Company as a result of
this
adoption. The Company has accrued no amounts as of March 31, 2008 and December
31, 2007, for the potential payment of interest and penalties. For the three
months ended March 31, 2008 and March 31, 2007, the Company has not recognized
any amounts in respect of potential interest and penalties associated with
uncertain tax positions. The Company or 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
March 31, 2008, the Company has future tax assets relating to net operating
loss
carryforwards of $16.0 million (December 31, 2007 - $15.8 million) and capital
losses of $3.3 million (December 31, 2007 - $3.0 million) before valuation
allowances. Of these losses, $10.0 million (December 31, 2007 - $9.4 million)
are losses generated by the foreign subsidiaries of the Company. Of the total
losses, $4.0 million (December 31, 2007 - $4.0 million) will begin to expire
by
2012 and $6.7 million of net operating losses and $3.3 million of capital
losses
(December 31, 2007 - $11.9 million) will begin to expire
thereafter.
8.
Accrued Liabilities and Accounts Payable
The
balances in accrued liabilities and accounts payable are comprised of the
following:
F-81
|
|
As at March 31, 2008
|
||||||||||||
|
|
Corporate
|
Colombia
|
Argentina
|
Total
|
|||||||||
|
Capital
|
$
|
165
|
$
|
10,425
|
$
|
149
|
$
|
10,739
|
|||||
|
Payroll
|
256
|
691
|
98
|
1,045
|
|||||||||
|
Audit,
legal, consultants
|
1,082
|
-
|
94
|
1,176
|
|||||||||
|
General
and administrative
|
820
|
373
|
67
|
1,260
|
|||||||||
|
Operating
|
—
|
11,052
|
607
|
11,659
|
|||||||||
|
Total
|
$
|
2,323
|
$
|
22,541
|
$
|
1,015
|
$
|
25,879
|
|||||
|
As at December 31, 2007
(restated - see note 2)
|
|||||||||||||
|
|
Corporate
|
Colombia
|
Argentina
|
Total
|
|||||||||
|
Capital
|
$
|
51
|
$
|
7,985
|
$
|
223
|
$
|
8,259
|
|||||
|
Payroll
|
476
|
513
|
212
|
1,201
|
|||||||||
|
Audit,
legal, consultants
|
1,385
|
196
|
105
|
1,686
|
|||||||||
|
General
and administrative
|
319
|
299
|
73
|
691
|
|||||||||
|
Operating
|
—
|
4,898
|
731
|
5,629
|
|||||||||
|
Total
|
$
|
2,231
|
$
|
13,891
|
$
|
1,344
|
$
|
17,466
|
|||||
9.
Commitments and Contingencies
Leases
Gran
Tierra Energy holds four categories of operating leases: office, compressor,
vehicle and housing with total monthly lease costs of $0.1 million. Future
lease
payments at March 31, 2008 are as follows:
|
Year
|
Cost
|
|||
|
2008,
Remainder
|
$
|
647
|
||
|
2009
|
631
|
|||
|
2010
|
564
|
|||
|
2011
|
276
|
|||
|
2012
|
280
|
|||
|
Total
lease payments
|
$
|
2,398
|
||
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 $0.2 million 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 obligation is $0.2
million.
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. 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.
F-82
Contingencies
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. Gran Tierra Colombia filed a response on
April 29, 2008 in which it refuted all of Ecopetrol’s claims and requested a
change of venue to the courts in Bogota. At this time no amount has been
accrued in the financial statements as the Company does 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 Gran Tierra Colombia’s
partner Solana Petroleum Exploration (Colombia) S.A., with the remaining
50% the
responsibility of Gran Tierra Colombia. To the Company’s knowledge, no other
proceeding against Gran Tierra Energy is currently contemplated by any
governmental authority.
10.
Financial Instruments, Fair Value Measurements and Credit
Risk
The
Company’s financial instruments recognized in the balance sheet consist of cash
and cash equivalents, accounts receivable, accounts payable, accrued
liabilities, and derivative financial instruments. 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.
The
Company recognizes the fair value of its derivative instruments as assets
or
liabilities on the balance sheet. None of the Company's derivative
instruments currently qualify as fair value hedges or cash flow hedges, and
accordingly, changes in fair value of the derivative instruments are
recognized as income or expense in the consolidated statement of operations
and accumulated deficit with a corresponding adjustment to the fair value
of
derivative instruments recorded on the balance sheet. Under the terms of
the
Credit Facility with Standard Bank (Note 11), 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
accordance with the terms of the Facility, the Company entered into a costless
collar derivative instrument 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 ending February 2010, 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.
|
Three Months Ended March 31,
|
|||||||
|
Financial
Derivative Loss
|
2008
|
2007
|
|||||
|
Realized
financial derivative loss
|
$
|
491
|
$
|
-
|
|||
|
Unrealized
financial derivative loss
|
693
|
657
|
|||||
|
Financial
derivative loss
|
$
|
1,184
|
$
|
657
|
|||
Certain
of Gran Tierra Energy’s assets and liabilities are reported at fair value in the
accompanying balance sheets. The following tables provide fair value measurement
information for such assets and liabilities as of March 31, 2008 and
December 31, 2007.
The
carrying values of cash and cash equivalents, accounts receivable and accounts
payable (including income taxes payable and accrued expenses) included in
the
accompanying consolidated balance sheets approximated fair value at March
31,
2008 and December 31, 2007. These assets and liabilities are not presented
in the following tables.
F-83
|
|
As of March 31, 2008
|
|||||||||||||||
|
|
|
|
Fair Value Measurements Using:
|
|||||||||||||
|
|
|
|
Quoted
|
Significant
|
|
|||||||||||
|
|
|
|
Prices in
|
Other
|
Significant
|
|||||||||||
|
|
|
|
Active
|
Observable
|
Unobservable
|
|||||||||||
|
|
Carrying
|
Total Fair
|
Markets
|
Inputs
|
Inputs
|
|||||||||||
|
|
Amount
|
Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|||||||||||
|
|
|
|
|
|
|
|||||||||||
|
Financial
assets (liabilities):
|
|
|
|
|
|
|||||||||||
|
Crude
oil collars
|
$
|
(3,342
|
)
|
$
|
(3,342
|
)
|
$
|
—
|
$
|
(3,342
|
)
|
$
|
—
|
|||
|
|
As of December 31, 2007
|
|||||||||||||||
|
|
|
|
Fair Value Measurements Using:
|
|||||||||||||
|
|
|
|
Quoted
|
Significant
|
|
|||||||||||
|
|
|
|
Prices in
|
Other
|
Significant
|
|||||||||||
|
|
|
|
Active
|
Observable
|
Unobservable
|
|||||||||||
|
|
Carrying
|
Total Fair
|
Markets
|
Inputs
|
Inputs
|
|||||||||||
|
|
Amount
|
Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|||||||||||
|
|
|
|
|
|
|
|||||||||||
|
Financial
assets (liabilities):
|
|
|
|
|
|
|||||||||||
|
Crude
oil collars
|
$
|
(2,649
|
)
|
$
|
(2,649
|
)
|
$
|
—
|
$
|
(2,649
|
)
|
$
|
—
|
|||
SFAS 157
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. As presented in the table above, this
hierarchy consists of three broad levels. Level 1 inputs on the hierarchy
consist of unadjusted quoted prices in active markets for identical assets
and
liabilities and have the highest priority. Level 2 and 3 inputs have lower
priorities. The Company uses appropriate valuation techniques based on the
available inputs to measure the fair values of assets and liabilities. When
available, Gran Tierra Energy measures fair value using Level 1 inputs
because they generally provide the most reliable evidence of fair
value.
The
following methods and assumptions were used to estimate the fair values of
the
assets and liabilities in the table above.
Level
1
Fair Value Measurements
The
Company does not have any assets or liabilities whose fair value is measured
using this method.
Level 2
Fair Value Measurements
Crude
oil collars —
The fair values of the crude oil are estimated using internal discounted
cash
flow calculations based upon forward commodity price curves, quotes obtained
from brokers for contracts with similar terms or quotes obtained from
counterparties to the agreements.
Level 3
Fair Value Measurements
The
Company does not have any financial assets or financial liabilities whose
fair
value is measured using this method.
F-84
11.
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. Based on Standard Bank Plc’s mid-year 2007 Independent
Reserve Audit, the Company has received preliminary approval to increase
its
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 and is included in general
and administrative expense. 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 June 30, 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 March 31, 2008, the Company has not drawn-down
on
this facility.
F-85
102,133,821
Shares
Common
Stock
Prospectus
June
5,
2008