Orkhan Hajizada

Case Study: Gran Tierra Energy Inc. in Brazil

Gran Tierra Energy Inc. is a U.S. based energy company, who has successfully
expanded into Argentina, Colombia and Peru. The company tried to expand into
Brazil, but faced few challenges there. These challenges were:
1. Initial investments and onshore operations moved slower than
anticipated.
2. The teams strategy was to introduce the horizontal drilling and multistage fracturing stimulation technologies to reverse declining
production in Brazil. Its success ultimately relied on SOE Petrobras
granting it access to infrastructure and marketing the final products.
But it was hard to convince Petrobras of benefits of applying new
technology. Moreover, the service providers lacked the critical mass
to develop the strong expertise of this technology, and the lack of scale
led to high costs. These services were offered at lower quality and
higher prices than the same services in N. America.
3. High-risk offshore non-operative partnership with Statoil and Petrobras
were not successful.
4. Successful preliminary results from Peru put additional pressures on
resource allocation, and called for capital-intensive investments in
order to continue its success.
Thus, Gran Tierra had two possible courses of actions concerned with its
operations in Brazil. The first option was to stay in Brazil and carry on without
change in resource allocation. The new junior entrants of the Brazilian market, as a
result of recent bid rounds, could potentially impact the availability, quality and price
of the service industry. They needed to manage more profound business relationships
with Petrobras.
Another option would be cutting back resources in Brazil and relocating them
towards potentially successful investment opportunities in Peru.