Gran Tierra Energy (GTE) to Acquire PetroLatina Energy in $525M Deal

Gran Tierra Energy Inc. (NYSE: GTE) announces that the Company has entered into an agreement (the "Acquisition Agreement") to acquire PetroLatina Energy Ltd. ("PetroLatina") for cash consideration of $525 million (the "Acquisition"), consisting of an initial payment of $500 million at closing, subject to closing adjustments, and a deferred payment of $25 million prior to December 31, 2016. PetroLatina is a private, independent exploration and production company with assets primarily in the Middle Magdalena basin of Colombia.

"The Acquisition represents a unique material opportunity in Colombia in terms of scale and upside potential, and will add a new core area for Gran Tierra in the prolific Middle Magdalena Basin," commented Gary Guidry, Gran Tierra's President and CEO, "The combination of Gran Tierra's strong, positive cash-flowing asset base and PetroLatina's attractive portfolio of development opportunities will create a premier Colombia-focused exploration and production company."

The Acquisition is expected to be funded through a combination of Gran Tierra's current cash balance, available borrowings under Gran Tierra's existing credit facilities, a new $130 million debt facility, and a private placement of up to $173.5 million of subscription receipts ("Subscription Receipts") priced at $3.00 per Subscription Receipt entitling each holder thereof to one share of common stock in the capital of the Corporation ("Common Shares"). The pricing reflects a 7.9 percent discount from the five day volume weighted average price of $3.26.

"Our balance sheet and financial strength along with low cost operations allow us to execute on our growth strategy in a low oil price environment," said Guidry. "We are acquiring significant proved, probable and possible reserves in a new core area in the Middle Magdalena basin which we expect to enhance our long-term growth strategy and to be an excellent fit with Gran Tierra's current reserves and resources base in the Putumayo basin."

Below are certain transaction highlights relating to the Acquisition.

Key Transaction Highlights(1)

--  Growth platform in Middle Magdalena basin with significant proved plus

    probable ("2P") reserves additions of 53 million barrels ("MMbbl") (100%

    oil), increasing Gran Tierra's pro forma December 31, 2015 2P reserves

    by 70% to 129 million barrels of oil equivalent ("MMBOE")(7)

--  Complementary acreage positions in Middle Magdalena basin, Llanos basin

    and Putumayo basin; addition of 469 thousand working interest ("WI")

    acres across Colombian portfolio

--  Expected PetroLatina H2/2016 WI before royalties 2P average daily

    production of 5,400 barrels of oil per day ("bopd")

--  Expected PetroLatina 2018 WI before royalties 2P average daily

    production of 14,800 bopd

--  Long term free cash flow generation and attractive pro forma operating

    netbacks(2) of approximately $30 per barrel ("bbl")

--  Pro forma Gran Tierra will have a diversified portfolio of three large

    producing oil fields and a diversified exploration portfolio of 694

    MMBOE(5) of unrisked mean prospective resources.

--  Accretive on a per share basis to Gran Tierra's production, reserves and

    net asset value

--  Expected cost savings from operational synergies and efficiencies

--  Combined company work program is expected to be self-funding for at

    least the next five years.

Key Attributes of PetroLatina(1)

PetroLatina's core asset is a 100% operated WI in the Midas Block located in the Middle Magdalena basin, which contains the Acordionero conventional oil field which PetroLatina discovered in 2013.

  -  Material Reserves and Production at Acordionero: With WI 2P reserves of

     47 MMbbl, Acordionero comprises approximately 90% of PetroLatina's

     total WI 2P reserves of 53 MMbbl. Acordionero's estimated H2/2016 WI

     before royalties 2P production of approximately 4,450 bopd represents

     82% of PetroLatina's estimated total H2 2016 WI before royalties 2P

     production of 5,400 bopd. As of March 31, 2016, the Acordionero-1

     discovery well has produced a cumulative 1.8 MMbbl of oil, while total

     cumulative oil production from the Acordionero field stands at 3.4

     MMbbl.



  -  Ongoing Drilling in the Acordionero Field: As of May 31, 2016, four

     wells have been drilled in the Acordionero field, consisting of one

     discovery exploration well and three follow-up appraisal wells.

     Acordionero has oil in two formations within a four-way structural

     closure. The productive formations are the Lisama "A" Sand, which

     produces heavy oil with 14 degrees API gravity, and the Lisama "C/D"

     Sands, which produce medium oil with 26 degrees API gravity.

     Approximately 34 MMbbl or 72% of Acordionero's WI 2P reserves are

     contained in the Lisama "A" sand, while the remaining 13 MMbbl or 28%

     of the field's WI 2P reserves are contained in the Lisama "C/D" Sands.



  -  Significant Long-Term Development Potential at Acordionero: On a 2P

     basis, 16 additional production wells and 5 water injection wells are

     expected to be drilled and completed over the next three years (2016-

     2018). In addition, four existing wells are expected to be recompleted

     by 2022. This development plan would require an approximate investment

     of $181 million over the period 2016 to 2022 and is expected to

     increase Acordionero's WI before royalties production from an

     approximate average of 4,600 bopd in 2016 to an approximate average of

     15,000 bopd in 2019.



  -  Significant Colombian Land Holdings: The Acquisition establishes a new

     core area for Gran Tierra in the Middle Magdalena basin (addition of

     78,662 WI acres), which has a history of significant conventional

     petroleum exploration and production success. Unconventional resources

     are now under evaluation for commercial opportunities in the La Luna

     and Rosa Blanca formations. The blocks being acquired are in the heart

     of this developing play trend.

The Acquisition further enhances Gran Tierra's dominant land position in the Putumayo basin (addition of 79,069 WI acres) by increasing the Company's WI in the PUT-4 Block from 70% to 100% WI and adding the 100% WI PUT-25 block. The PUT-4 block has 7 prospects and consolidates an incremental 5 MMBOE(6) of mean risked prospective resources. Gran Tierra is planning to drill the Siriri prospect on PUT-4 in 2016, which will test the N-Sands exploration play.

The Llanos blocks (addition of 310, 940 WI acres), LLA-1, LLA-53 and LLA-70, further diversify Gran Tierra's position in the basin and provide additional, operated, exploration acreage which may include stratigraphic and structural prospectivity.

To view Figure 1: Gran Tierra Energy and PetroLatina's Land Position in Colombia, visit the following link: http://media3.marketwire.com/docs/1061339-F1.pdf

Summary of Transaction

PetroLatina operational figures as follows:

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Estimated WI Proved ("1P") Reserves:(1)                             21 MMbbl

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Estimated WI 2P Reserves:(1)                                        53 MMbbl

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Estimated WI Proved + Probable + Possible ("3P")                    98 MMbbl

 Reserves:(1)

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Expected 2P WI Production (H2 2016 Average):(1)                   5,400 bopd

----------------------------------------------------------------------------

Expected 2P WI Production (2017 Average):(1)                      8,600 bopd

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Expected 2P WI Production (2018 Average):(1)                     14,800 bopd

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2P net present value before tax discounted at 10%(1)           $ 990 million

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3P net present value before tax discounted at 10%(1)         $ 1,771 million

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Oil as Percentage of Reserves & Production:                             100%

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WI Land Holdings, March 31, 2016:                               469 thousand

                                                                       acres

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Estimated Tax Pools, March, 31, 2016:                          $73.2 million

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Estimated Operating Netback, H2 2016:(2)                      $29 per barrel

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Estimated Operating Netback, 2017:(2)                            $31 per bbl

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Estimated Operating Netback, 2018:(2)                            $36 per bbl

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Estimated 2016-2018 Capital Expenditures:(1)                    $185 million

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Acquisition metrics, based on the purchase price of $525 million, are expected to be as follows:

----------------------------------------------------------------------------

WI 1P Reserves:                                                $25.0 per bbl

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WI 2P Reserves:                                                 $9.9 per bbl

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WI 3P Reserves:                                                 $5.4 per bbl

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Expected 2P WI Production (H2 2016 Average):                $97,200 per bopd

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Expected 2P WI Production (2017 Average):                   $61,000 per bopd

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Expected 2P WI Production (2018 Average):                   $35,500 per bopd

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Estimated Operating Netback Multiple, H2 2016:(2)(3)(4)            9.1 times

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Estimated Operating Netback Multiple, 2017:(2)(3)                  5.5 times

----------------------------------------------------------------------------

Estimated Operating Netback Multiple, 2018:(2)(3)                      times

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Notes:

  (1)  PetroLatina's reserves, production, operating netbacks and capital

       expenditures are based on an independent reserves evaluation,

       effective December 31, 2015, prepared by McDaniel & Associates Ltd.

       ("McDaniel") for Gran Tierra in accordance with Canadian National

       Instrument 51-101 - Standards for Oil and Gas Activities ("NI 51-

       101") and the Canadian Oil and Gas Evaluation Handbook ("COGEH") (the

       "PetroLatina McDaniel Reserves Report"). Gran Tierra's reserves and

       production are based on an independent reserves evaluation, effective

       December 31, 2015, prepared by McDaniel in accordance NI 51-101 and

       COGEH (the "GTE McDaniel Reserves Report"). McDaniel January 1, 2016

       Brent oil price deck: $47.5/bbl 2016, $56.2/bbl 2017, and $65.0/bbl

       2018. Production and reserves are on a pre-royalty basis.

  (2)  Based on the PetroLatina McDaniel Reserves Report. Operating netbacks

       calculated as oil sales net of royalties and operating expenses;

       Operating netback is a non-GAAP measure and does not have a

       standardized meaning under generally accepted accounting principles

       in the United States of America ("GAAP"). Investors are cautioned

       that this measure should not be construed as an alternative to net

       income or other measures of financial performance as determined in

       accordance with GAAP. The Company's method of calculating this

       measure may differ from other companies and, accordingly, may not be

       comparable to similar measures used by other companies. Management

       believes that operating netback is a useful supplemental measure for

       management and investors to analyze operating performance and provide

       an indication of the results generated by our principal business

       activities prior to the consideration of other income and expenses.

  (3)  Operating netback multiples calculated as purchase price divided by

       operating netback.

  (4)  Annualized

  (5)  Based on the independent evaluation of prospective resources prepared

       by McDaniel as at September 30, 2015 with respect to Gran Tierra's

       Colombian properties, the independent evaluation of Petroamerica Oil

       Corp's ("Petroamerica") prospective resources prepared by McDaniel as

       at December 31, 2015 (the "PTA McDaniel Prospective Resources

       Report") and further derived from the PTA McDaniel Prospective

       Resources Report by a member of management who is a qualified

       reserves evaluator in accordance with COGEH as of the same date as

       PetroGranada Colombia Limited ("PGC") owns the remaining 50% WI in

       the Putumayo-7 Block, the other 50% WI being owned by Petroamerica

       and derived from the PTA McDaniel Prospective Resources Report by a

       member of management who is a qualified reserves evaluator in

       accordance with COGEH as of the same date as PetroLatina owns the

       remaining 30% WI in the Putumayo-4 Block, the other 70% WI being

       owned by Gran Tierra.

  (6)  Derived from the PTA McDaniel Prospective Resources Report by a

       member of management who is a qualified reserves evaluator in

       accordance with COGEH as of the same date as PetroLatina owns the

       remaining 30% WI in the Putumayo-4 Block, the other 70% WI being

       owned by Gran Tierra.

  (7)  Based on the GTE McDaniel Reserves Report and the PetroLatina

       McDaniel Reserves Report. Comparison is to Gran Tierra pro forma

       reserves at December 31, 2015, including reserves acquired through

       acquisitions of Petroamerica and PGC in January 2016.

Acquisition Process

The Acquisition has been unanimously approved by the board of directors of Gran Tierra. The Acquisition Agreement was entered into among an indirect subsidiary of the Company, PetroLatina and three key shareholders of PetroLatina that hold more than 80% of the shares of PetroLatina. Under the terms of the Acquisition Agreement, it is a condition of closing that all of the remaining shares of PetroLatina are acquired pursuant to provisions of the Articles of Association of PetroLatina upon the closing of the Acquisition. The Acquisition is also subject to customary closing conditions, including, among other things, any required regulatory approval, and is expected to close prior to October 31, 2016.

Financing of the Transaction

Consideration for the Acquisition will consist of an initial payment of $500 million at closing, subject to closing adjustments, and a deferred payment of $25 million prior to December 31, 2016. The Acquisition will be funded through a combination of Gran Tierra's cash and current restricted cash balance of $170 million(8), concurrent private placement of up to $173.5 million of Subscription Receipts, a new $130 million debt facility, and Gran Tierra's existing credit facilities. Pro forma for the Acquisition and the financings, the Company had $123.5 million of available borrowings as of March 31, 2016.

In connection with the Acquisition, Gran Tierra has agreed to issue up to 57,835,134 Subscription Receipts priced at $3.00 per Subscription Receipt to certain institutional investors and certain directors and executive officers of Gran Tierra for aggregate gross proceeds of up to $173.5 million. Scotiabank, RBC Capital Markets and Dundee Securities Inc. served as placement agents (the "Agents") for the Subscription Receipt financing. Each Subscription Receipt will entitle the holder thereof to receive one Common Share upon satisfaction of certain conditions.

The proceeds from the sale of Subscription Receipts (less 50% of the placement agents' fees, the "Escrowed Funds"), will be held in escrow and will be released to Gran Tierra when (i) other than the payment of the purchase price, all conditions precedent to the completion of the Acquisition pursuant to the Acquisition Agreement, as may be amended from time to time, have been satisfied in accordance with the terms of the Acquisition Agreement or waived (provided no such amendment or waiver is materially adverse to the holders of the Subscription Receipts) and (ii) the parties to the Acquisition Agreement are ready, willing and able to consummate the transactions contemplated thereby concurrent with the release of the Escrowed Funds (the "Escrow Release Condition"). In the event the Escrow Release Condition is not satisfied prior to 5:00 p.m. (Toronto time) on October 31, 2016, the Acquisition Agreement is terminated in accordance with its terms, or we have announced that we do not intend to proceed with the Acquisition, each holder of Subscription Receipts will be entitled to its pro rata share of the Escrowed Funds, interest earned on Escrowed Funds, net of any applicable withholding taxes, and 50% of the placement agents' fees.

The offer and sale of the Subscription Receipts was conducted by way of a private placement in reliance on Section 4(a)(2) of the U.S. Securities Act of 1933, as amended, and in Canada by way of private placement in all provinces of Canada under applicable accredited investor and director and officer private placement exemptions. This press release does not constitute an offer to sell or the solicitation of an offer to buy the securities herein described, and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction. The private placement of Subscription Receipts is expected to close on or about July 8, 2016.

Gran Tierra has entered into a commitment letter with Scotiabank, its lead lender, to provide up to $130 million in bridge financing to fund a portion of the Acquisition. The bridge facility is expected to have a tenor of 364 days, bear interest at USD LIBOR plus 6%, and would have customary bridge facility repayment terms allowing for multiple longer term financing options.

(8)  As at May 31, 2016, cash of $163.3 million and current restricted cash

     of $6.6 million.

Updated Guidance

Gran Tierra expects to provide additional updated 2016 guidance for funds flow from operations and operating netback with the release of its second quarter 2016 results on or around August 8, 2016.

Advisors

Scotia Waterous acted as lead financial advisor and RBC Capital Markets also served as a financial advisor to Gran Tierra in connection with the Acquisition. Scotiabank, RBC Capital Markets and Dundee Securities acted as Joint Lead Agents to Gran Tierra in connection with the private placement. Scotiabank provided bank financing in connection with the Acquisition.

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