Property, Plant and Equipment and Inventory

Property, Plant and Equipment



(Thousands of U.S. Dollars)	As at March 31, 2016			As at December 31, 2015
Oil and natural gas properties
Proved	$	2,088,937		$	1,998,330
Unproved	373,899			310,771
	2,462,836			2,309,101
Other	28,557			28,342
	2,491,393			2,337,443
Accumulated depletion, depreciation and impairment	(1,637,203		)	(1,548,450		)
	$	854,190		$	788,993

In the three months ended March 31, 2016, the Company recorded ceiling test impairment losses in its Colombia and Brazil cost centers of $54.6 million and $1.3 million, respectively, related to lower oil prices. In the three months ended March 31, 2015, the Company recorded a ceiling test impairment loss in its Brazil cost center of $4.3 million, related to lower oil prices. 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 during the 12 months period 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 for that oil and natural gas. That average price is then held constant, except for changes which are fixed and determinable by existing contracts. Therefore, ceiling test estimates are based on historical prices discounted at 10% per year and it should not be assumed that estimates of future net revenues represent the fair market value of the Company's reserves.

In the three months ended March 31, 2016, and 2015, the Company recorded impairment losses in its Peru cost center of $0.4 million, and $32.7 million, respectively, related to costs incurred on Block 95.

Asset impairment for the three months ended March 31, 2016, and 2015 was as follows:



	Three Months Ended March 31,
(Thousands of U.S. Dollars)	2016		2015
Impairment of oil and gas properties	$	56,234	$	37,014
Impairment of inventory	664		—
	$	56,898	$	37,014

Acquisition of PGC

On January 25, 2016, the Company acquired all of the issued and outstanding common shares of PGC, pursuant to the terms and conditions of an acquisition agreement dated January 14, 2016. Upon completion of the transaction, PGC became an indirect wholly-owned subsidiary of Gran Tierra. The net purchase price of PGC was $19.4 million, after giving consideration to net working capital of $18.3 million. The acquisition was accounted for as an asset acquisition with the excess consideration transferred over the fair value of the net assets acquired allocated on a relative fair value basis to the net assets acquired.

The following table shows the allocation of the cost of the acquisition based on the relative fair values of the assets and liabilities acquired:



(Thousands of U.S. Dollars)
Cost of asset acquisition:
Cash	$	37,727

Allocation of Consideration Transferred:
Oil and gas properties
Proved	$	12,228
Unproved	15,563
	27,791
Net working capital (including cash acquired of $0.2 million and restricted cash of $18.6 million)	18,339
Long-term deferred tax liability	(8,402		)
	$	37,728

Contingent consideration of $4.0 million will be payable if cumulative production from the Putumayo-7 Block plus gross proved plus probable reserves under the Putumayo Block meet or exceed eight MMbbl. PGC is an oil and gas exploration, development and production company active in Colombia. Contingent consideration will be recognized when the contingency is resolved.

Inventory

At March 31, 2016, oil and supplies inventories were $9.4 million and $1.3 million, respectively (December 31, 2015 - $17.8 million and $1.3 million, respectively). At March 31, 2016, the Company had 331 Mbbl of oil inventory (December 31, 2015 - 616 Mbbl) NAR. In the three months ended March 31, 2016, the Company recorded oil inventory impairment of $0.7 million (three months ended March 31, 2015 - $nil) related to lower oil prices.