Fitch Upgrades Gran Tierra Energy’s Ratings to ‘B+’; Outlook Stable

Fitch Ratings has upgraded the Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs) of Gran Tierra Energy Inc. (GTE) and Gran Tierra Energy International Holdings Ltd. to ‘B+’ from ‘B’ with a Stable Outlook. The upgrade, which removes the previous Rating Watch Positive (RWP) designation, also applies to Gran Tierra’s senior unsecured and secured notes.

The rating upgrade reflects Gran Tierra’s expanded scale and asset diversification following the company’s acquisition of i3 Energy North Sea and i3 Energy Canada Ltd., doubling Gran Tierra’s proven reserves (1P) on a pro forma basis. Fitch projects production could reach approximately 60,000 barrels of oil equivalent per day (boe/d) by 2026, aligning with a ‘B+’ rating level.

Key Rating Factors

Expanded Scale
With the acquisition, Gran Tierra’s proven developed producing (PDP) reserves have increased to 91 million barrels of oil equivalent (mmboe), while 1P reserves reached 183 mmboe, effectively doubling the company’s scale. Fitch projects daily production to approach 60,000 boe/d by 2025. Financial metrics are expected to strengthen, with estimated debt levels reaching around $8/boe for PDP reserves and $4/boe for 1P reserves, marking the lowest debt levels among comparable ‘B’ rated companies.

Enhanced Geographic Diversification
The acquisition adds 19,000 boe/d of production in Canada, offering Gran Tierra a foothold in a stable, investment-grade jurisdiction. The transaction also introduces natural gas to Gran Tierra’s portfolio, which will make up roughly 20% of its production, reducing its dependency on oil.

Low-Cost Production Structure
Gran Tierra’s production cost is competitive, with a half-cycle cost of $25/boe in 2023, which Fitch expects to maintain over the next few years. This cost structure is expected to improve the company’s resilience to price fluctuations. Fitch’s projections anticipate an average sales discount of $12/bbl to Brent over the rating period.

Stable Capital Structure
Fitch anticipates that Gran Tierra’s gross leverage will remain around 1.5x in 2024 and below 2.0x through the rating horizon. The acquisition is expected to be funded without additional debt, with capital expenditures estimated at $900 million from 2024-2027, covered by internal cash flows. Annual free cash flow (FCF) is forecast to average $40 million over 2024 and 2025.

Comparative Analysis with Peers

Gran Tierra’s credit profile is broadly in line with other independent Colombian oil producers, including SierraCol Energy Limited and GeoPark Limited. Both SierraCol and GeoPark are rated ‘B+’, constrained by the operational risks inherent to smaller oil and gas producers in Colombia. In comparison, 3R Petroleum Óleo e Gás S.A., rated ‘BB-‘, benefits from a larger reserve base and natural gas focus, which distinguishes it within the sector.

Forecast Assumptions and Sensitivity Analysis

Fitch’s rating case assumes a Brent crude price of $80/bbl in 2024, falling to $65/bbl by 2026. Key assumptions include:

• Production targets of 39,000 boe/d in 2024, 61,000 boe/d in 2025, and 68,000 boe/d by 2026.
• Operating costs averaging $11/boe between 2025-2027.
• Capital expenditures of approximately $260 million in 2024.

Factors Supporting Further Upgrades
A consistent rise in production to 75,000 boe/d and maintenance of 1P reserve life at 10 years could lead to an upgrade. Fitch would also consider a further upgrade if Gran Tierra diversifies its operations and enhances oil and gas sales prices.

Factors for Potential Downgrade
Production declines below 45,000 boe/d or a decrease in 1P reserve life below seven years could pressure the rating. Additionally, higher debt levels, reaching a total debt-to-EBITDA ratio of 3.0x, or a significant downturn in oil prices could negatively impact the rating.

Liquidity and Debt Structure

Gran Tierra reported $278 million in cash as of the third quarter of 2024, with $25 million in short-term debt. Fitch’s projections assume positive free cash flow through 2027. In the third quarter, Gran Tierra issued $150 million in new senior notes due 2029 at a 9.5% interest rate, using $100 million for the i3 Energy acquisition.

This rating update reflects Fitch’s assessment of Gran Tierra’s evolving asset base and financial structure, positioning it with greater operational resilience and flexibility.