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    Unassociated Document

VIA
EDGAR

    September
18, 2009

    Mr. Karl
Hiller

    Branch
Chief

    Securities
and Exchange Commission

    100 F
Street, N.E.

    Washington,
D.C. 20549-3628

              Re:

              Gran Tierra Energy
      Inc.

    Form
10-K for the Fiscal Year Ended December 31, 2008

    Filed
February 27, 2009

    File
No. 001-34018

    Dear Mr.
Hiller:

    On behalf
of Gran Tierra Energy Inc. (“Gran
Tierra” or the “Company”)
we are responding to comments received from the staff (the “Staff”) of
the Securities and Exchange Commission (the “Commission”)
by letter dated August 31, 2009, with respect to Gran Tierra’s Form 10-K listed
above (the “Comments”).  The
numbering of the paragraphs below corresponds to the numbering of the Comments,
which for the Staff’s convenience have been incorporated into this response
letter.

    Form 10-K for the Fiscal
Year Ended December 31, 2008

    Financial
Statements

    Note 3 – Business
Combinations, page 90

    1.           We note your disclosures indicate
that upon closing of the acquisition of Solana Resources Limited, Gran Tierra
security holders owned approximately 51% of the combined company on a diluted
basis.  Please tell us how you have computed this ownership percentage
and submit a schedule which provides details of your
calculation.

    Response:

    Pursuant
to the terms of the arrangement agreement between Gran Tierra and Solana
Resources Limited (“Solana”)
which was announced July 29, 2008, each Solana shareholder received either (i)
0.9527918 of a common share of Gran Tierra or (ii) 0.9527918 of a common share
of Gran Tierra Exchangeco, Inc., a Canadian subsidiary of Gran Tierra (an "Exchangeable
Share") for each common share of Solana held. The Exchangeable Shares:
(i) have the same voting rights, dividend entitlements and other attributes as
Gran Tierra common stock; (ii) are exchangeable, at each shareholder's option,
on a one-for-one basis, into Gran Tierra common stock; and (iii) are listed on
the Toronto Stock Exchange. Exhibit A contains the details of our calculation
reflecting that Gran Tierra security holders owned approximately 51% of the
combined company on a diluted basis.  As reflected on Exhibit A, on
November 14, 2009, the total number of shares of Gran Tierra common stock, on a
diluted basis, for the combined company equaled 265,127,815
shares.  Gran Tierra security holders held 50.9% consisting of
104,611,399 of common stock outstanding, 10,984,129 shares of exchangeable
shares, 13,618,512 in-the-money warrants and 5,680,001 outstanding stock
options.  Former Solana stockholders held 48.4% consisting of
51,516,332 shares of Gran Tierra common stock, 69,104,635 Exchangeable Shares,
7,145,938 roll over warrants (held by certain directors/executive officers of
Solana) and 466,869 replacement stock options to former employees of Solana who
became employees of Gran Tierra or one of its subsidiaries.  Finally,
Crosby Capital LLC held 0.8% consisting of 2,000,000 shares of Gran Tierra
common stock issued upon the consummation of the arrangement
agreement.

            300, 611-10th
      Avenue SW, Calgary, Alberta, Canada

              (403) 265-3221 Fax
      (403) 265-3242

               www.grantierra.com

    2.           We note under the terms of the
agreement with Solana Resources Limited, you issued warrants and options that
have exercise prices denominated in Canadian dollars.  Further, we
note on page 84, your disclosure indicating you have designated the U.S. dollar
as your functional currency.  Please tell us how you have considered
the guidance in paragraph 33, footnote 19 and paragraph B129 of SFAS 123R in
determining these share-based payments are appropriately classified and
accounted for as equity rather than as liabilities.  Additionally,
please tell us whether you maintain any other options whose exercise prices are
denominated in currencies other than U.S. dollars.

    Response:

    Upon
closing of the arrangement agreement with Solana, 7,500,000 outstanding warrants
of Solana held by two individuals, one an officer and director of Solana and the
other one a director of Solana, became exercisable for Gran Tierra common
shares. The warrants’ exercise prices remain denominated in Canadian dollars,
the same currency as both of the above warrant holders were remunerated in their
capacities with Solana. Consequently, consistent with SFAS 123(R), paragraph 33,
footnote 19 and paragraph B129,1 the warrants are appropriately
classified as equity.

    No Solana
stock options remained after the closing of the arrangement agreement.
Unexercised Solana stock options as of the closing of the arrangement agreement
were cancelled either in exchange for Gran Tierra stock or Gran Tierra stock
options with exercise prices denominated in U.S.
dollars.  Consequently, the options granted are appropriately
classified as equity.

        1 SFAS
123(R), Share-based Payment (“SFAS 123(R)”), paragraph 33, footnote 19 states
the following:

        For this
purpose, an award of equity share options granted to an employee of an entity’s
foreign operation that provides for a fixed exercise price denominated either in
the foreign operation’s functional currency or in the currency in which the
employee’s pay is denominated shall not be considered to contain a condition
that is not a market, performance, or service condition. Therefore, such an
award is not required to be classified as a liability if it otherwise qualifies
as equity. For example, equity share options with an exercise price denominated
in Euros granted to employees of a U.S. entity’s foreign operation whose
functional currency is the Euro are not required to be classified as liabilities
if those options otherwise qualify as equity. In addition, such options are not
required to be classified as liabilities even if the functional currency of the
foreign operation is the U.S. dollar, provided that the employees to whom the
options are granted are paid in Euros.

        SFAS
123(R) paragraph B129 provides the background for the above guidance and adds
the following:

      In this
example, however, options with an exercise price denominated in, for instance,
the British pound would be required to be classified as
liabilities.

        - 2 -

    We do not
maintain any stock options or warrants other than those noted above with
exercise prices denominated in a currency other than our functional
currency.

    Note 6 – Share Capital, page
98

    3.           We note in 2007 that you modified
the terms of the warrants issued in the 2006 Offering and recorded $8.6 million
of liquidated damages representing the change in the fair value of the
warrants.  You disclose that you determined the revised fair value of
the warrants using a Black-Scholes warrant pricing model based on a 25%
volatility rate which you describe as a “typical volatility rate used to value
this type of security”.  Please explain how you determined that a 25%
volatility rate was “typical,” and tell us why you believe this rate is a better
estimate than your historical volatility rate in computing the fair value of
these warrants.

    Response:

    We advise
the Staff that the 25% volatility rate disclosed was the volatility rate we and
certain major warrant holders from the 2006 Offering (the “Major
Holders”) used in June 2007 to determine the fair value of the changes we
made to the terms of the warrants in lieu of a cash payment to the warrant
holders for liquidated damages.2

    a) In our
discussions with the Major Holders in the 2006 Offering, we agreed to amend the
terms of the warrants in lieu of a cash payment to the warrant holders of US$8.6
million for liquidated damages as originally contemplated in the Registration
Rights Agreements. We agreed to lower the exercise price of the warrants from
$1.75 to $1.05 and extend the term of the warrants by one year to June
2012.

    b) In the
process of determining the appropriate volatility to use in the calculation of
the fair value of the amendment to the terms of the warrants, we conferred with
the Major Holders and were advised that they value warrants on a mark-to-market
basis regularly. For those warrants that are not publicly traded and which have
a long expected life, similar to the Gran Tierra warrants, they typically use a
volatility rate in and around 25%.

    c) We
determined, after discussions with the investors, that the fair value of the
amendment to the terms of the warrants should be equivalent to the $8.6 million
of liquidated damages owed by Gran Tierra pursuant to the Registration Rights
Agreements.  We used a Black-Scholes option pricing model and an
assumed volatility of 25% in determining the required amendment to the terms of
the warrants that would result in a change in fair value equivalent to $8.6
million.

      2 Gran
Tierra sold an aggregate of 50,000,000 units of Gran Tierra’s securities at a
price of $1.50 per unit in a private offering for gross proceeds of $75 million,
pursuant to three separate Securities Purchase Agreements, dated June 20, 2006,
and one Securities Purchase Agreement, dated June 30, 2006 (collectively, the
“2006
Offering”).  Each unit comprised one share of Gran Tierra’s
common stock and one warrant to purchase one-half of a share of Gran Tierra’s
common stock at an exercise price of $1.75 for a period of five years, resulting
in the issuance of 50,000,000 shares of Gran Tierra’s common stock and warrants
to purchase 25,000,000 shares of Gran Tierra’s common stock. In connection with
the issuance of these securities,  Gran Tierra entered into four
separate registration rights agreements (the “Registration
Rights Agreements”) with the investors pursuant to which Gran Tierra
agreed to register for resale the shares (and shares issuable pursuant to the
warrants) issued to the investors in the offering by November 17, 2006 (the
“Mandatory
Effective Date”).  The registration statement filed on December
7, 2006, as amended, was not declared effective by the Securities and Exchange
Commission until May 14, 2007.

        - 3 -

    For
accounting purposes, the fair value of the amendment to the warrants was
determined in accordance with SFAS 123(R), paragraph 7, which
states:

    If the
fair value of goods or services received in a share-based payment transaction
with nonemployees is more reliably measurable than the fair value of the equity
instruments issued, the fair value of the goods or services received shall be
used to measure the transaction.

    The fair
value of the amendment to the warrants, using the Black-Scholes option pricing
model with a volatility rate of 100% (which is similar to the volatility rate we
used for determining the fair value of stock options granted), was $4.3
million.  This fair value of $4.3 million must then be compared to the
fair value of the goods and services received as a result of the amendment of
the warrants, namely the $8.6 million of value given in lieu of the cash
liquidated damages otherwise contractually payable if the warrants were not
amended.  As a result, Gran Tierra appropriately recorded the $8.6
million as a more reliable measure of the fair value of the amended warrants as
this amount is contractually supported by the Registration Rights Agreements and
consistent with paragraph 7 of SFAS 123(R).

    In future filings in which we discuss
the amendment of the warrants, we will clarify the disclosure to reflect the
discussion above as follows:

    Gran
Tierra sold an aggregate of 50,000,000 units of Gran Tierra’s securities at a
price of $1.50 per unit in a private offering for gross proceeds of $75 million,
pursuant to three separate Securities Purchase Agreements, dated June 20, 2006,
and one Securities Purchase Agreement, dated June 30, 2006 (collectively, the
“2006 Offering”).  Each unit comprised one share of Gran Tierra’s
common stock and one warrant to purchase one-half of a share of Gran Tierra’s
common stock at an exercise price of $1.75 for a period of five years, resulting
in the issuance of 50,000,000 shares of Gran Tierra’s common stock and warrants
to purchase 25,000,000 shares of Gran Tierra’s common stock. In connection with
the issuance of these securities, Gran Tierra entered into four separate
registration rights agreements (the “Registration Rights Agreements”) with the
investors pursuant to which Gran Tierra agreed to register for resale the shares
(and shares issuable pursuant to the warrants) issued to the investors in the
offering by November 17, 2006 (the “Mandatory Effective Date”).  The
registration statement was declared effective by the Securities and Exchange
Commission on May 14, 2007.  As a result, the Company accrued U.S.$8.6
million in liquidated damages.

        - 4 -

    On June
27, 2007, under the terms of the Registration Rights Agreements, the Company
obtained a sufficient number of consents from the signatories to the
Registration Rights Agreements waiving Gran Tierra’s obligation to pay in cash
the accrued liquidated damages.  In lieu of making a cash payment, the
Company agreed to amend the terms of the warrants issued in the 2006 Offering by
reducing the exercise price of the warrants to $1.05 and extending the life of
the warrants by one year.  The revision in the fair value of the
warrants resulting from the amendment to the terms of the warrants amounted to
$8.6 million (equivalent to the amount of the liquidated damages) and has been
reflected on the consolidated balance sheet as an increase to the warrants
included in shareholders’ equity and a settlement of the liability for
liquidated damages.  In calculating the revision in the fair value of
the warrants, Gran Tierra determined that the $8.6 million obligation for
payment of liquidated damages under the Registration Rights Agreements was a
more reliable measure than the lower fair value obtained using a Black-Scholes
option pricing model.  The $8.6 million of liquidated damages has been
recorded as an expense in the consolidated statement of operations in the
amounts of $7.37 million for the year ended December 31, 2007, and $1.26 million
in the fourth quarter of 2006, with a corresponding liability recorded on the
consolidated balance sheet.

    * * *
*

    In
addition, Gran Tierra Energy Inc. acknowledges:

              ·

              Gran
      Tierra is responsible for the adequacy and accuracy of the disclosure in
      the filing;

              ·

              Staff
      comments or changes to disclosure in response to Staff comments do not
      foreclose the Commission from taking any action with respect to the
      filing; and

              ·

              Gran
      Tierra may not assert Staff comments as a defense in any proceeding
      initiated by the Commission or any person under the federal securities
      laws of the United States.

        - 5 -

    Please do
not hesitate to call me at (403) 265-3221, ext. 230, if you have any questions
or would like any additional information regarding this matter.

    Sincerely,

    Gran
Tierra Energy Inc.

              By:

              /s/ Martin
      Eden

    Martin Eden

    Chief Financial Officer

              cc:

              Dana
      Coffield – Chief Executive Officer and
President

        - 6 -

    Exhibit
A

              Gran
      Tierra Energy Inc.

              Analysis
      of Resulting Ownership Interests after Closing of
Agreement

              To
      Identify Acquirer

              Gran
      Tierra Energy Inc.

              14-Nov-08

              %

              Common
      Shares Issued

            104,611,399

              Exchangeable
      Shares Issued

            10,984,129

              Warrants(*)

            13,618,512

              Stock
      Options(**)

            5,680,001

            134,894,041

            50.9
            %

              Solana