GeoPark Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 7, 2024

There are 6 speakers on the call.

Operator

Good morning, and welcome to the GeoPark Limited Conference Call. Following the results announcement for the 4th quarter ended December 31, 2023. After the speakers' remarks, there will be a question and answer session. On the company's corporate website at www.geopark.com. A replay of today's call may be accessed through this website in the Invest With Us section of the GeoPark corporate website.

Operator

Before we continue, please note that certain statements contained in the results, press release and on this conference call are forward looking statements rather than historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those described. With respect to such forward looking statements, the company seeks protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive developments and risk factors listed from time to time in the company's SEC reports and public releases. Those lists are intended to identify certain principal factors that could cause actual results to differ materially from those described in the forward looking statements, but are not intended to represent a complete list of the company's business. All financial figures included here and were prepared in accordance with the IFRS and stated in the U.

Operator

S. Dollars unless otherwise noted. Reserves figures correspond to PRMS standards. On the call today from GeoPark is Andreas Ocampo, Chief Executive Officer Jamie Caballero, Chief Financial Officer Augusto Zibbelega, Chief Technical Officer Martin Tirado, Chief Operating Officer James Deckelman, Chief Exploration Officer and Stacy Steemel, Shareholder, Value Director. And now I'll turn the call over to Mr.

Operator

Andreas Ocampo. Mr. Ocampo, you may begin.

Speaker 1

Good morning, and thank you for joining our Q4 and full year 2023 conference call. We have recently celebrated our 10 year anniversary of listing on the New York Stock Exchange, and we're thankful for the more than 2,000 shareholders and bondholders and the many others that have joined us in this journey and look forward to continuing delivering results over the next 10 years. GeoPark had a strong finish in 2023, where operational results during the Q4 allowed us to recover volumes, replenish 2P reserves and build a healthier balance sheet. We invested $200,000,000 in capital expenditures during 2023 to drill 48 gross wells, resulting in a 2P reserve replacement ratio of 110% and average production annually of 36,500 barrels of oil per day equivalent. Thanks to the restoration of production from the Indico 6 and 7 wells in the CPO 5 block in September and boosted by the more than 5,500 new gross barrels added from our successful exploration drilling campaign, we were able to increase our 4th quarter production to an average of 38,400 barrels of oil per equivalent per day, which is 10% higher than the 3rd quarter.

Speaker 1

For the full year 2023, GeoPark generated $452,000,000 in adjusted EBITDA, down 16% compared to 2022, following lower prices and production. These results also reflect lower operating and administrative costs and lower hedge losses. Every dollar invested on our assets returned 2.3x adjusted EBITDA, proving the quality of our asset base and consistent capital efficiency. We ended the year with a significant cash position of $133,000,000 further illustrating our financial quality. Our net leverage of 0.8x was well below our long term target of 1x to 1.5x adjusted EBITDA, and we have no principal maturities due until 2027.

Speaker 1

We ended 2023 with a net income of $111,000,000 the equivalent of approximately $2 per share. Our financial performance allowed us to continue returning cash to our shareholders with a 13% capital return yield or a $61,000,000 balance between buybacks and dividends. We continue to invest as one of our top priorities in our ESG plus that we call speed initiatives and efforts with great results and recognition, mainly on carbon intensity as well as in governance. We were upgraded by MSCI to a AA rating, placing us in the ESG leader bracket for the first time. That is also a significant improvement over our initial single B rating back in 20 18.

Speaker 1

We have also recently embarked on that journey with the carbon disclosure project, CDP, climate change, participating for the 2nd year in a row and achieving an upgrade to B from C. Internally, we completed a double materiality exercise to fine tune our sustainability strategy and a thorough human rights risk impact assessment for our operations in Colombia. The action plans resulting from this proactive exercise will continue to make us a better company and a better partner for employees, neighbors, authorities and investors. Looking ahead, at the end of last year and the beginning of this year, we had encouraging results in our CPO-five block with the Alcon-one well and the Perico-one well, both which tested oil, proving our team thesis of a potential continuation of the Tiganahacana oil play into the northern part of the CPO pipe block. These were long awaited results and we're excited and encouraged by these wells so far.

Speaker 1

We expect to continue appraising and derisking this new play going forward. We are also having encouraging results in Ecuador with oil production being tested at Pericor Norte 5 well, which means 4 out of 4 successful wells in this new U. S. And play developed by our team. Same in the Llanos exploration acreage where more wells and more production are expected to come from the 4 new discoveries of last year.

Speaker 1

In the core Janos 34 block, we continue with a horizontal drilling campaign as well as expanding our water flooding project with more injectable wells being added. As part of our disciplined capital allocation process, our own shares are currently offering a unique opportunity for repurchase, which is why we announced our intention to commence a modified Dutch auction tender to buy up to $50,000,000 of GeoPark shares following our view that the current market value of GeoPark does not properly reflect the intrinsic net value of our assets. We also believe that the current market environment and financial health of the company provide ample headroom to execute this great investment while continuing to achieve our long term goals. We continue to assess other opportunities to grow and improve our underlying business performance. Our goal is very simple: deliver more energy, more value and more shared prosperity.

Speaker 1

We're ready for and excited about our next 10 years on the New York Stock Exchange, and thank you for your support and trust during this journey. We look forward to reporting on our progress throughout the year and would be happy now to answer any of your questions.

Operator

Thank you. And our first question goes to Stephanie Folcard of Octus Advisors.

Speaker 2

Good morning, gents, ladies and gents for taking my question. I've got a few. First, I think you touched based around operation. I was wondering whether you could provide maybe some more color. We're expecting a few things in terms of news flow in Q1, thinking about well test result at Alcon 1, Zozal ST2 and some result as well in Julienx.

Speaker 2

I was wondering whether there's been any update or something worthwhile to share on those. Then on the horizontal well at Llanos 34, how are things at the moment? Is it tracking performance better than expected? I'd be also curious to have a view of you given it's quite important for production. And then 2 perhaps simple accounting question.

Speaker 2

I saw in the account that there was an impairment, I think, of 13,000,000, 1, 3 $1,000,000 I wonder what is that, maybe Chile, maybe not. And there was also a write off of $8,000,000 for exploration. Also, I don't think there was any exploration negative results in Q4. So I was wondering what that was about. Thank you.

Speaker 3

Stefan, this is Luis. So I'm going to take the wells question. So, so far, we have already drilled 7 horizontal wells in the channel 34 in the middle of formation in the Tiguan field. So horizontal wells represent more than 20% of the production of channel 34. So it's around 10,500 barrels of oil per day.

Speaker 3

Currently, we are drilling the first horizontal well in the Hakena field in the Mirador formation. So looking forward, we will continue with the horizontal well drilling campaign, mainly in the Mirador formation, and we also have a well planned in the Guadalupe formation. So bottom line, we will be drilling between 5 to 7 more wells this year. And in parallel, we'll continue looking for ways to optimize drilling and completion costs. Since the first well, we improved drilling and completion times by 30% and cost by 40%.

Speaker 3

So Stefan, good morning. This is Martin Tarrado. I'll take the question on Alcon and Los Angeles, the 2 and then let Jaime go over the impairment question. So for Alcon, basically, we're talking about CPO5. So we have 2 wells, Alcon 1 and Perico 1.

Speaker 3

Alcon is right now producing about 100 and 20 barrels oil per day with about 40% water cut. This well compared to Perico has lower production, and I'll share a little bit what we're seeing. In contrary, Perico is a much better well, producing 6 30 barrels oil per day with less than 10% water cut. And when you look at the logs, Alcon has around 25 to 30 feet of net pay versus Perrico, 10 feet. What has happened in Alcon is that the well was drilled and completed, but the operators had about 30 days of delay to put the well on production.

Speaker 3

So completion fluid was in the hole for about 30 days and through build ups, we confirmed that the well is damaged. So although the production of the well is not what we wanted and what we expected compared to the loss. We know the oil is there, and we're really encouraged. Furthermore, the rig that is drilling right now, Indico III, probably has about 25 to 30 more days to go, and it will go back to this extension of Hatana and Tegana to drill the well Cisne. So we're very excited about those results, and Alcon is just an operational setback that we're discussing with the operator.

Speaker 3

Concerning Sorsal, in Sorsal, the Sorsal I continues to be stable, about 6.60 barrels of oil per day, 4% water cut, beautiful API gravity at 33. So that well is doing good. When we drilled Sarsal 2, we did hit a spot and we're evaluating because the productivity of that well is coming with high water cut. So we're looking at that well in particular. That said, again, on the Sorsal discovery, we're looking at further appraisal later in the year.

Speaker 3

And potentially, maybe even a more color on the well. Yes. Stefan, this is Jaime. Thanks for the question. I'm going to cover the two angles.

Speaker 3

The 13,300,000 dollars impairment that you saw effectively is associated with Chile as you rightly hypothesized. And it's basically the difference between the transaction that we did and what we had on the books at the time. The write off that you're seeing in the Q4 is $8,000,000 is associated to our well in Danos 87, the Toradori well.

Speaker 4

Those are

Speaker 3

the two points. Thank you.

Speaker 2

Great. So

Speaker 4

that was all from last year's statement. It was the work from last year that slowed noncommercial volumes. And

Speaker 3

we took time to analyze and evaluate and then ended up deciding

Speaker 4

to plug an abandoned well. That's why you see the write off now and not before.

Operator

The next question goes to Roman Rossi of Canaccord. Roman, please go ahead. Your line is open.

Speaker 5

Good morning. Thanks for taking my questions and congrats on this great quarter. So the first question is regarding crude oil differentials. You reported a lower local marker discount this quarter. So I just wanted to understand what are you expecting for 2024 in Abrilgar?

Speaker 3

Sorry. Yes. Hi, Roman. This is Jaime. What we're seeing in terms of our differentials, they're actually pretty much stabilizing, let's say, around the 10 year averages.

Speaker 3

Vasconia has been gravitating in the 4% to 6% range. I think we closed the quarter at 4.9% at discount. Oriente is at $8.6 per barrel, also kind of close to the $7.8 per barrel kind of average over the last 10 years, so pretty stable. Overall, what I would say in terms of the market is it's been a positive market. Year to date, headline Brent price, it's around $81 a barrel.

Speaker 3

When you look at kind of general trends and directions, what we're seeing is that the supply and demand are both growing at pace. So it provides for a good market environment for what's occurring now. That's really what we're seeing. Thank you, Roman.

Speaker 5

Great. Great. And the second question is regarding the launch offer you just announced. Are you expecting to initiate and compete during Q1 of 2024? Or are you assuming that you will have some of these during the Q2 of the year?

Speaker 3

Yes. Thank you, Roman, on that. The Dutch auction in I think the overall context was provided by Andres in his opening remarks. In terms of the execution, what we are seeing is that this should likely occur. We're going to initiate it in the next few weeks.

Speaker 3

I think there's some time dependencies around that. We need to have that open for a 20 day business day period. So that probably means that the execution of the Dodge auction is going to be completed around mid April, mid to late April. That's what we would expect. So that's the time frame that we're operating with at the time.

Speaker 3

Thank you.

Speaker 5

Okay, awesome. Thank you.

Operator

Thank you. We have a question from the webcast from Daniel Guardiola at BTG Pactual. Good morning, Andreas and team. Two quick questions from my end. Can you share with us what is the declining rate of LLA24 and how do you foresee CPO5 evolving?

Operator

Thank you.

Speaker 3

Good morning, Daniel. This is Martin Tarada again. If we talk about Shanos 34 and the decline for 2024, We basically see flat production on that field. The base production declines around 20% to 25%, but with the activity that we got going on with 2 rigs drilling horizontal wells, injector wells and some vertical wells, plus some conversions on water injection, our view is that we're going to stay flat throughout the year for Channel 34. Talking about CTO5, we're excited about the well that is coming.

Speaker 3

Indico III is a well that is a development well, the last development well of the Indico. Indico continues to be very flat and good production. All the wells are flowing naturally around 23,000 barrels gross. So in this well, we expect order of magnitude something similar to the previous well. So that's the short term that we got.

Speaker 3

The rig will continue throughout the year. So as we mentioned on the previous question, from the well Indico 3, we're going to go back to the Alcon, Perico area and drill Cisne. And then after that, we will drill an exploration well called Lark, followed by some additional appraisals in Cante Flamenco. And then based on the results that we continue to have some additional drilling in the continuation of Hacana, Tigana.

Operator

Great. We have a couple more questions from Daniel. Are you actively looking at the assets that Exxon is disposing in Vaca Muerta in Argentina? The next question, can you confirm what is the expected capital return yield for 2024 combining dividends, regular buyback and the extraordinary buyback of U. S.

Operator

50,000,000 dollars

Speaker 4

Thank you. Thank you, Daniel. Yes, I mean, as you know, we have an active portfolio of opportunities that we're looking at throughout Latin America. Vaca Muerta is probably the most or one of the most attractive onshore oil plays in the region, one of the most underdeveloped ones. So obviously, looking at opportunities in a place like that important for us and we're actively looking at ideas there.

Speaker 4

And yes, that's one of them. And so it sounds like an interesting opportunity for a company like that.

Speaker 3

Daniel, and with regards to yield, currently, given our dividend our expected dividend distribution, we're talking about a yield that's around 7%. When you consider the continuity of that through the course of the year and buybacks, the Dodge auction that we recently announced and obviously subject to stock performance throughout the year. What we would be anticipating is a yield that may end up being in the 13% to 15% type range. That's what we would expect. Obviously, contingent on stock price performance throughout the year and how these buybacks perform.

Operator

It appears we have no further questions. I'll now hand back to Andreas for any closing comments.

Speaker 4

Thank you everybody for your interest in GeoPark and your support. We're always here to answer any questions you may have. So please feel free to reach out and we encourage you to visit in our field and our operations or call us anytime for further information. Thank you and have a good day.

Operator

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.

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Key Takeaways

  • GeoPark closed Q4 with average production of 38,400 boe/d (10% above Q3) and full-year 2023 average of 36,500 boe/d, while investing $200 million to drill 48 wells and achieving a 2P reserve replacement ratio of 110%.
  • In 2023 the company generated $452 million in adjusted EBITDA (down 16% YoY), delivered 2.3× EBITDA on every invested dollar, and ended the year with $133 million cash and net leverage of 0.8×, with no principal debt maturities until 2027.
  • GeoPark reported net income of $111 million (~$2/share) and returned $61 million to shareholders via buybacks and dividends, representing a 13% capital return yield.
  • On ESG, GeoPark was upgraded to an MSCI AA rating, achieved a CDP Climate Change score upgrade to B, and completed a double materiality exercise plus a human rights risk assessment to strengthen sustainability governance.
  • Looking ahead, the company highlighted successful appraisal wells in CPO-5 (Alcon-1, Perico-1), continued horizontal drilling in Llanos 34, and announced a $50 million Dutch auction tender to repurchase shares, targeting a total capital return yield of 13–15% in 2024.
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Earnings Conference Call
GeoPark Q4 2023
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