Impairment

12 Months Ended

Dec. 31, 2021

Asset Impairment

Asset impairment for the years ended December 31, 2021, 2020 and 2019 was as follows:


	Year Ended December 31,
(Thousands of U.S. Dollars)	2021		2020		2019
Impairment of oil and gas properties	$	—	$	560,344	$	—
Impairment of inventory	—		4,151		—
	$	—	$	564,495	$	—

(i)Oil and gas property impairment

For the year ended December 31, 2021, the Company had no ceiling test impairment losses. There was $560.3 million of ceiling test impairment losses for the year ended December 31, 2020, and no ceiling test impairment losses for the year ended December 31, 2019. The Company follows the full cost method of accounting for its oil and gas properties. Under this method, the net book value of properties on a country-by-country basis, less related deferred income taxes, may not exceed a calculated “ceiling”. The ceiling is the estimated after-tax future net revenues from proved oil and gas properties, discounted at 10% per

year. In calculating discounted future net revenues, oil and natural gas prices are determined using the average price for the 12 months prior to the ending date of the period covered by the balance sheet, calculated as an unweighted arithmetic average of the first day-of-the month price for each month within such period. That average price is then held constant, except for fixed and determinable changes by existing contracts. Therefore, ceiling test estimates are based on historical prices discounted at 10% per year, and should not be assumed that estimates of future net revenues represent the fair market value of the Company’s reserves. In accordance with GAAP, Gran Tierra used an average Brent price of $68.92 per bbl for of the December 31, 2021 ceiling test calculations (December 31, 2020, and 2019 - $43.43 and $64.20 per bbl, respectively).

The Company has considered the impact of the evolving worldwide demand for energy and global advancement of alternative sources of energy that are not sourced from fossil fuels in the ceiling test impairment assessment on oil and gas properties. The estimated ceiling amount of the Company’s oil and gas properties was based on proved reserves, the life of which is generally less than 16 years. The ultimate period in which global energy markets can transition from carbon based sources to alternative energy is highly uncertain. However, the majority of the cash flows associated with proved reserves per the 2021 reserve report should be realized prior to the potential elimination of carbon-based energy.

At December 31, 2021, a specific adjustment to the discount rate used in the ceiling test to account for the risk of the evolving demand for energy is not permitted as under the full cost accounting 10% discount rate is prescribed.

(ii)Inventory impairment

For the year ended December 31, 2021, the Company had no inventory impairment losses. There were inventory impairment losses of $4.2 million for the year ended December 31, 2020, and no inventory impairment losses for the year ended December 31, 2019.

Goodwill Impairment

The entire goodwill balance of $102.6 million was impaired during the year ended December 31, 2020. The reporting unit’s carrying value exceeded its fair value due to lower forecasted commodity prices. There was no goodwill impairment for the year ended December 31, 2019.