Gran Tierra Case Analysis

Company Analysis Gran Tierra has grown exponentially since commencing operations in 2005. By following a strategy of acquiring and capitalizing on undervalued assets in South America the company has managed to secure a steady revenue stream to fund growth. In five years, from 2008-2012 the company has increased in value by 63% (Appendix B). Additionally the company has an impressive debt to total assets ratio of 0.25 and a current ratio of 2.16 (Appendix C). Moreover, the company has been able to reach 17,000 barrels of oil equivalents in average daily oil production, with most production taking place in Columbia. These factors demonstrate a strong financial and a strong operational performance (although there is no comparison available for industry norms). This strong performance can be attributed to a sound international and business strategy. Gran Tierra’s quick identification of valuable assets in Columbia, allowed them to be early entrants into the market and capture some of the best acreage. As a result, Gran Tierra discovered the two largest light oil fields in Columbia in 20 years. Columbia has become a ‘cash-cow’ for Gran Tierra,
With so much uncertainty and risks in markets that can also offer large potential payoffs, Dana must decide how best to allocate funds for further growth in 2013. The Brazilian market has so far been somewhat disappointing to Gran Tierra’s executive team. Dana is questioning their commitment and the budget allocation of $67 million USD to this market. Consequently, Dana has three alternative to consider:
1. Reallocation of funds towards promising exploration and development in Columbia. This alternative is attractive due to the high upside per share of this option and external factors that have made previous projects in Columbia a success. The risk is option is the uncertainty of its