Here's Why Gran Tierra Energy Inc Stock Is Jumping Today

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What happened

Shares of Gran Tierra Energy (NYSEMKT: GTE) spiked on Wednesday, up more than 10% as of 2:45 p.m. EST, following the announcement of its 2018 budget and production growth outlook.

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So what

Gran Tierra Energy said it expects to spend $250 million to $270 million next year on developing its oil properties in Colombia. That spending level should enable the company to produce 36,500 to 38,500 barrels of oil equivalent per day next year, which represents 20% to 27% growth versus 2017. Furthermore, the company noted that production could rise another 12% to 20% in 2019.

Gran Tierra Energy also stated that it could finance its 2018 budget within cash flow since it can generate $265 million to $285 million in cash flow from operations at a $57 Brent oil price, which is the global benchmark price. That price point is worth noting because Brent recently traded at more than $64.50 per barrel, suggesting Gran Tierra could generate even more cash flow next year. The company noted that if oil does exceed that $57-a-barrel forecast, it could accelerate capital expenditures, repay debt, or repurchase shares. Meanwhile, if crude slumps, the oil producer can slow spending to align it with cash flow.

Now what

Gran Tierra Energy's 2018 plan suggests it can produce a gusher of oil next year even if prices dip a bit. While that growth could reward investors by continuing to drive the stock higher, Gran Tierra is a high-risk oil stock given its smaller size and focus on Colombia. Investors might be better off considering a less-risky option instead.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.