Will GTE Go To $8.00?
Introduction
Gran Tierra Energy shares have seen a 30.49% increase month-over-month after Brent Crude Futures jumped over 14% within the same month. The company released some insights about their operations stating they have increased production to 30,600 BOPD, and have paid down their revolving credit facility balance to $140 million. That being said, the company is still greatly behind on their 2021 EBITDA projections due to deferring production in Q2 after blockades/riots occurred in Colombia. Despite a lot of political headwinds in 2021, Gran Tierra seems to be firing on all cylinders and with strong oil in the second half of the year, the company can still meet EBITDA expectations.
Gran Tierra’s Path to Becoming A Multibagger
The following is a long-dated chart going back to when GTE first went public.
When looking at this compelling trendline, it appears that $0.87-$0.90 area may be the beginning of a major bounce to the upside. Additionally, the chart today looks awfully similar to the chart dating back to early 2007 before the shares had a major leg up.
Moreover, the fundamentals of the company have seemed to be backing up my consensus drawn from the chart. Brent Crude is currently trading at around $84.00, and Goldman Sachs currently has a $90 price target for oil. In addition, Gran Tierra’s current average daily production has already increased to the highest since Q4 of 2019, with expectations to get to 40,000 BOPD in 2022, which would be the highest since 2018. The company with restored production and the removal of poor derivative hedges is looking to have a strong second half of 2021 and an even stronger 2022.
Final Thoughts
The company’s risk of loan foreclosure seems oversold due to oil prices being so high, the company should be able to generate enough cash to be in compliance with debt covenants by year end. Additionally, if creditors gave the company covenant relief in 2020, there is no reason as to why they would run the company of its assets when oil is at $80 and production is restored. Therefore, risk of loan foreclosure is very low. That being said, GTE does face some political risk operating in Colombia which seems to be currently putting an ugly taste in investors mouths. I think GTE can change this narrative about their political risks simply by showing revenue/earnings strength in the second half of 2021. In conclusion, GTE is beginning to shows signs of its shares in 2007 before heading to a major upside. I believe it’s only a matter of time before consolidation around $0.90 area leads to a major leg up.