Page 2 of 113
PART I
This Annual Report on Form 10-K, particularly in Item 1. “Business”, Item 2. “Properties”, and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the Securities Act) and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). All statements other than statements of historical facts included in this Annual Report on Form 10-K including without limitation statements in the Management’s Discussion and Analysis of Financial Condition and
Results of Operations regarding our financial position, estimated quantities and net present values of reserves, business strategy, plans and objectives of our management for future operations, covenant compliance, capital spending plans and those statements preceded by, followed by or that otherwise include the words “believe”, “expects”, “anticipates”, “intends”, “estimates”, “projects”, “target”, “goal”, “plans”, “objective”, “should”, or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct and because forward-looking statements are subject to risks and uncertainties, actual results may differ
materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements, including, but not limited to, those set out in Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K. The information included herein is given as of the filing date of this Form 10-K with the Securities and Exchange Commission (“SEC”) and, except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Annual Report on Form 10-K to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is
based.
Item 1. Business
General
Gran Tierra Energy Inc. together with its subsidiaries (“Gran Tierra” or “we”) is an independent international energy company engaged in oil and gas acquisition, exploration, development and production. We own oil and gas properties in Colombia, Argentina, Peru and Brazil. A detailed description of our properties can be found under Item 2 “Properties”. All dollar ($) amounts referred to in this Form 10-K are United States (U.S.) dollars, unless otherwise indicated.
In 2010, our geographic focus was on South America. We focused on development of producing fields and generation of exploration prospects in Colombia, including the award of three blocks in the 2010 Colombia Bid Round, and acquisition of a working interest in an additional block. In Argentina, we maintained existing production and commenced work on a natural gas project which was suspended in February, 2011 and will be abandoned. We continue to review alternatives to evaluate to field development. In Peru, we received Environmental Impact Assessment approvals, commenced seismic and preparation for drilling operations and further expanded our
exploration portfolio through acquisition of working interests in four additional blocks. In Brazil, we entered into our initial exploration and development transaction by acquiring a 70% working interest in each of in four blocks in the on-shore Reconcavo Basin. The blocks awarded in Colombia and acquired in Peru and Brazil are still subject to various approvals. On January 17, 2011, we entered into an agreement to acquire all the issued and outstanding shares and warrants of Petrolifera Petroleum Ltd. (“Petrolifera”) pursuant to a Plan of Arrangement (the “Arrangement”), subject to Petrolifera shareholder, regulatory, stock exchange, and court approvals. Petrolifera is a Canadian based international oil and gas company listed on the Toronto Stock Exchange and owns working interests in 11 exploration and production blocks - three
located in Colombia, three in Peru and five in Argentina. The Arrangement is expected to close in March 2011. See “Subsequent Events” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further details.
Our principal executive offices are located at 300, 625-11th Avenue S.W., Calgary, Alberta, Canada. The telephone number at our principal executive office is (403) 265-3221. Our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to such reports and all other filings pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 which we make available as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC, are available free of charge to the public on our website www.grantierra.com. To access our SEC filings, select SEC Filings
from the investor relations menu on our website, which will provide a list of our SEC filings. Our website address is provided solely for informational purposes. We do not intend, by this reference, that our website should be deemed to be part of this Annual Report. Any materials we have filed with the SEC may be read and/or copied at the SEC’s Public Reference Room at 100 F Street N.E. Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding us. The SEC’s website address is www.SEC.gov.
The Oil and Gas Business
In the discussion that follows, and in Item 2 “Properties”, we discuss our interests in wells and/or acres in gross and net terms. Gross oil and natural gas wells or acres refer to the total number of wells or acres in which we own a working interest. Net oil and natural gas wells or acres are 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 a specified percentage of the cost to explore for, develop
and produce that oil and natural gas. A working interest owner that owns a portion of the working interest may participate either as operator or by voting its 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.