GeoPark Q3 2023 Earnings Call Transcript

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November 9, 2023

There are 8 speakers on the call.

Operator

Morning, and welcome to the GeoPark Limited Conference Call following the results announcement for the Q3 ended September 30, 2023, at the 2024 Work Program and Investment Guidelines. After the speakers' remarks, there will be a question and answer session. If you do not have a copy of the press release, it is available at the Investor section on the company's corporate website at www.geo park.com. A replay of today's call may be accessed through this webcast in the Investor With Us section of the GeoPark corporate website. 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.

Operator

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 herein were prepared in accordance with the IFRS and are stated in U. S.

Operator

Dollars unless otherwise noted. Those figures correspond to PRMS standards. On the call today from GeoPark is Andreas Ocampo, Chief Executive Officer Veronika Davila, Chief Financial Officer Augusto Zibbelaga, Chief Technical Officer Martin Tirado, Chief Operating Officer James Deckelman, Chief Exploration Officer and Stacy Steimel, Shareholder Value Director. And now, I'll turn the call to Mr. Andres Ocampo.

Operator

Mr. Ocampo, you may begin.

Speaker 1

Good morning, everyone, and thank you for joining our call. We are here today in Bogota with our team to report our Q3 results and next year's work program and budget guidelines. During the Q3, GeoPark invested $44,000,000 drilled 14 wells and produced approximately 35,000 barrels a day equivalents impacted by temporary production shut ins in CPO-five, which were restored in late September. Production is today at approximately 39,000 barrels a day equivalent. The company recorded revenues of $192,000,000 and adjusted EBITDA of $115,000,000 a margin of 60%, which means that for every dollar invested GeoPark generated approximately $2.60 As a result, net profits reached $25,000,000 or $0.44 per share.

Speaker 1

Over the last 12 months, our return on capital employed was 42%. In 2023, GeoPark continues to return value to its shareholders. Between share buybacks and dividends, expect to exceed $50,000,000 including the announced dividend of $7,500,000 to be paid in December. This should be above the target of 40% to 50 percent of free cash flow for the year. After investing in our assets, servicing our debt and taxes as well as distributing cash back to shareholders, GeoPark ended the quarter with $106,000,000 in cash on the balance sheet and a net leverage ratio of less than one time.

Speaker 1

Our 2023 drilling campaign continues to deliver positive results, particularly from our accelerated activity during the second half of the year with 12 rigs working. Multiple new plays are being opened by our team and portfolio, which are adding new exciting appraisal and delineation activity for the remainder of this year and next. The horizontal well campaign in Janus 34 with the most recent well producing over 3,400 barrels a day currently has 2 full time rigs executing back to back wells and is expected to continue. The Toledo discovery in the Janos Basin is flowing 1300 barrels of oil per day and represents a new exciting stratigraphic play in the Paliocene, which we will continue to appraise and delineate. Solstadeste, another Paliocene prospect is showing positive preliminary logging information and will be tested in the next couple of weeks may also open more drilling opportunities.

Speaker 1

The Halcon-one well in CPO-five, which is showing positive preliminary log in information will be tested in the next couple of weeks and will be followed by Perico-one well in the same Paliocene plane and train. The Houston new play in Ecuador developed by our exploration team with 3 successful wells already flowing 2,700 barrels of oil per day and more to come. Our 2024 drilling campaign will be focused on continuing the development in Janos 34 with water planning project and horizontal wells campaign as well as on abrasion and delineating the new place being opened by the 2023 program. As always, the work program and guidelines are flexible and can be adopted based on changes in oil prices or other conditions as well as drilling results. We expect to invest $150,000,000 to $200,000,000 to drill 35 to 45 wells and produce between 37,041,000 barrels per day with production growth expected to come from Colombia and Ecuador, partially offset by Brazil and Chile, which have no capital allocated.

Speaker 1

We expect to generate between $420,000,000 $550,000,000 in adjusted EBITDA at $80 to $90 per end. Approximately 20% to 30% of our CapEx will be allocated to exploration and the rest will be allocated to appraisal, delineation and development activities as well as facilities. We are also executing the 3rd largest 3 d seismic acquisition program in Colombia across 2 blocks adjacent to CPO-five, complemented also by an additional seismic program within the CPO-five block. We expect this large new seismic information will allow our subsurface team to define and map new potential prospective areas in place. As always, after fully funding our CapEx program, we will continue to allocate our cash flow to return value to shareholders and continue to strengthen our balance sheet.

Speaker 1

We expect to return approximately 40% to 50% of our free cash flow after taxes and debt service back to shareholders through a combination of our base dividends, share buybacks and or extraordinary dividends. We're finishing the year with great results, which are positioning GeoPark for an even better 2024. We look forward to continue delivering and reporting on our progress in the incoming quarters. Thank you and we will now take your questions.

Operator

First question comes from Alejandro DeMichellis from Jefferies. Alejandro, your line is open. Please go ahead.

Speaker 2

Yes, good morning. Thank you very much for taking my questions. A couple of questions, please. The first one is on production. Could you please give us some granularity on how you see that production into next year evolving because you have given us quite a wide range of production?

Speaker 2

Then the second one is your production costs have been a little bit high this quarter. Maybe you can give us some kind indication of how you see that production cost evolving over time, say, over the next 12 months? And then on the exploration side, you have made some good progress. Maybe you can give us some more detail on how you're seeing for Saal, how you're seeing Alcon and what excites you in the program that we have for the next 12 months, please?

Speaker 3

Hi, good morning, Alejandro. Thanks for the question. This is Martin. I'll start with the first question that you asked around production for 2024 and more granularity and then I'll pass it on to Andres and Veronika. So for 2024, our average for the year will be between 37,040 1,000 barrels of oil equivalent per day.

Speaker 3

That's around 1% to 10% increase from 2023. And when we look at each of the assets, Platiniso and Chile, they will be declining around 10% to 30%. As Andres mentioned, there's no development capital allocated to these two assets. If we move to Brazil, in Brazil we expect flat production. Shanos 34 it will be flat to slightly decline.

Speaker 3

And then in CPO5 and Shanos exploration blocks we expect growing. So overall, Colombia and Ecuador production, we expect an increase of 3% to 11%.

Speaker 4

Thank you. Thank you, Alejandro. Good morning. Moving on how are you? Moving on to your question on production cost.

Speaker 4

We've seen an increase in production cost over the past quarters. A few significant drivers of this, on the one side, energy cost in Colombia that have risen given El Nino weather pattern. We saw a significant increase in the Q3. It has since receded a bit and it's starting to stabilize, but that accounted for about 50% of the increase that we saw in the Q3 of 2023 alone. Additionally, the peso has appreciated the Colombian peso has appreciated, it was about 10% in the Q3, also affected our local currency denominated costs, which are about 70% of production costs.

Speaker 4

One factor that is particular to the Q3 has to do with the composition of sales. We have a drop in inventories for Putumajo and Oriente assets. Those have higher overall production costs than our Janos Basin assets. And so they move that averages, but those are factors that tend to even over time. All in all, for 2023, we still expect consolidated production cost to be about $10 to $11 per BOE in line with cost in Colombia and from inflation.

Speaker 4

The guidance that we provided yesterday within a work program includes $160,000,000 to $170,000,000 worth of OpEx that equates to about $12 per BOE considering volumes produced. I have to say our team will continue to focus on implementing constitutive initiatives and we look forward to doing that over the next year.

Speaker 2

Okay. Thank you.

Speaker 5

Hey, Alejandro. Good morning. Andres here. So to comment on your question about which excites us from these new activities or this new place,

Speaker 1

We really believe these are

Speaker 5

more or less the 405 we mentioned in the introduction and in the release are really exciting new opportunities. I'll start with the horizontal well campaign in Janus 34 that is really delivering great results with the last horizontal well having been drilled and completed at more than 35% cost saving to the first one, and it was put on production a lot faster, is also deploying 3,500 barrels a day. That's really exciting. And having 2 rigs working on that play back to back also makes us really excited about that. In terms of the things that exploration opportunities have been opened up this year, all of them are slightly different and exciting from for different reasons.

Speaker 5

The Toritos oil play is Guadalupe Paliocene formation stratigraphic type of trap. So as you know, like it happened in Tigana and Hakana, which are mostly stratigraphic place in that same formation, stratigraphic traps tend to be more risky or difficult to find, but once you find them, usually are associated with bigger volumes. So we expect to add more wells before the end of the year, and the campaign for next year also has some significant appraisal and development drilling in that new opportunity. All of these plays, we're getting results as we speak. Some of them have been testing for a couple of weeks.

Speaker 5

Some of them are going to be testing for the next few weeks. So obviously, it's very preliminary everything we can say now, but we look forward over the course of the next few months as we add more activity to these and have more information to them. Hopefully, we can be more precise and give more details on what does it mean in terms of volumes and activity. Sorzal is an up deep well from the discovery earlier this year in the Sorzal-one well. So we just drilled Sorzaleste-one well.

Speaker 5

It encountered about 40 feet of net pay, net oil pay in the Guadalupe formation. It's a down strong structural trap. If you remember, back in 2012, when we discovered the Tua field in the Llanos Basin, It was the first the Tua field was the 1st down thrown field in the basin that was discovered and that opened a new play. And following that, we had a number of discoveries in the basin. So, Solstad is exciting because it's another down thrown structural trap that we discovered.

Speaker 5

So right now, as I said, the log in information is showing more or less 40 feet of oil pay with no upper and oil water contact in that formation. So looking forward to test this well. I mean, so far, the result looks encouraging, but obviously as always we need to put the barrels on the tank before we celebrate. But if the testing is successful, we see a lot more activity coming from that field. Alcon is very important for us because it's in CPO-five, it's in the northern part of the block.

Speaker 5

And if you remember, when we purchased Amerisource some years ago, we had multiple reasons for that acquisition. But one of those reasons was because we saw there was a lot of potential in the Guadalupe formation up in the northern part of the block. Alcon 1 was the well 2 that we were drilling to hopefully prove that thesis. So again, this is a well that we're going to be testing in the next couple of weeks, but the log in information today is showing that there's an oil pay with no oil water contact in that area. Also, given these results, we have already agreed with the operator that there's going to be a second well drilled back to back to it.

Speaker 5

So once Alcon is tested and completed, we're going to move to Perico 1 to continue delineating this new play that is open in the northern part of the block. So also very excited about that. And the last one is Ecuador. And in Ecuador, our geoscience team developed a new geological model to track the traffic mechanism of the USAN inside of some of our blocks. And we've drilled already 3 wells following this model, producing 2,700 barrels a day of gross oil.

Speaker 5

Today, the production in Ecuador is 3x what it was last quarter. So we also think this opens up a lot of activity and opportunities for us to continue delineating and appraising this new play. So again, I'm sorry I didn't give you a short answer or which ones we are excited most, but I think these five are the biggest highlights from what we can say. And also, I would like to take the opportunity that we're talking about exploration. I would like to introduce James Deckelman, who's our new CXO, who recently joined the management team.

Speaker 5

He's with us on the call and would probably in the future be taking these questions. But James, if you want to add anything, I may have missed.

Speaker 6

Excellent. Thanks, Andres. Thank you so much for the introduction. I'll handle my thanks to you for the question. We appreciate that very, very much.

Speaker 6

I'd like to begin by first saying that I'm very pleased to be a part of this leadership team on a very, very high caliber, working assets of such high quality in basins that are so very prolific. These are basins that I worked earlier in my career and just very pleased to now be levering that experience and success here at GeoPark, principally in 3 areas. 1 is organic and inorganic growth secondly, to expand our organizational capabilities and the third thing is to develop some differential technologies. So again, very, very pleased to be here. Since I joined the company quite recently, with respect to your question regarding what we're very excited about, I would reinforce some of the comments that were made by Andres.

Speaker 6

And what's really of interest to me are the high volume stratigraphic concepts that we're now developing both in Colombia and in Ecuador. What's germane here are 2 key points. One is the volume potential of these traps and also the play repeatability. And what we're seeing in the Doritos play, for example, is clear repeatability within Block 123. Therefore significant scope for additional volume potential as well as possible extension into CPO4.

Speaker 2

Okay. That's great. As a small follow-up, because Andres, you mentioned the payout first half, but you didn't mention the payout outcome. Could you give us some kind of range on the payout on our call?

Speaker 5

Yes. It's more or less 25, 30 feet, which is similar to what we've seen in other parts of in that formation in other parts of that area. So it's more or less within what we expected.

Speaker 6

And just adding to that, that well also intersected no water contact, which is very, very important as well.

Speaker 2

That's great. Thank you very much guys.

Speaker 4

And good afternoon. The

Operator

next question comes from Stephane Foucaud from Autus Advisors. Stephane, your line is open. Please go ahead.

Speaker 7

Yes. Hi, guys. Thanks for taking my questions. I've got a few. First, looking at 2024 production guidance, given the level of activities and the new field entering production, it looks a bit conservative.

Speaker 7

So I was wondering whether you give us a sense of why you would expect production to be at the end of 2024 when the ANOS 1, 2, 3, 87 and Equador are in full production. That would help us, I think, me to have the view on where 2025 could be in production. So that's my first question. 2nd, on 1, 2, 3 and 87, what do you think from what you see so far and the development program? What do you see being the production capacity at each of these fields?

Speaker 7

I'm pretty little bit early stage, but you might have some sense of that. And lastly, what do you expect to pay any cash tax in Colombia in Q4 'twenty three? And if yes, how much? Thank you.

Speaker 3

Hello, Stefan. This is Martin Tarado. Thanks for your question. I'll cover the first one around production exit for 2024 and then I'll pass it on to Andres and Veronika again. So for 2024, as Andres mentioned in the initial remarks, the average will be 37,000 to 40,000 barrels of oil equivalent per day.

Speaker 3

And as you can imagine, next year is going to have significant appraisal activity in this covered field. So the exit will depend on the learnings and the results of these fairways that we will be appraising. In Ecuador, we're going to be drilling between 27 appraisal wells. In Chano's exploration, 3 to 9 wells. So at this point, that's as much as we can share.

Speaker 5

So I think, Stefan, both the first and second question. This what is different about next year's program is that it has maybe a more significant component of delineation and appraisal than maybe in the past couple of years. I think in the past couple of years, it was either development or new exploration, and it was very easy development. We associate production and exploration, we don't. In delineation and appraisal, there's some risking associated with it.

Speaker 5

And you can see that the range of activity on each one of these delineation plays is pretty wide. I mean, some of it goes to, I think, in Ecuador, we're going to do something like 2 to 7 wells. And I think in Ingenos, exploration goes from 3 to 9 wells. So that's a pretty wide range. And the reason for that is because we're in early stages.

Speaker 5

We are seeing what we're seeing is encouraging. We hope we can be on the upper side of the range. And if we are there, then yes, we would be on the derisking side of the play. And hopefully, that what that brings is a lot more upside on the production side than what we're showing in our guidance. So probably that is the main reason why it sounds a little odd, the level of activity compared with the level of production that we're showing.

Speaker 5

Also part of the production, as it was mentioned by Martin, it is offset by 3 assets that we have that are producing today collectively something around 4,000 barrels a day that are not getting any capital associated that are going to be declining. So that offsets a little bit the corporate production growth. Sorry, on the cash taxes, Pedro, you want to make sure?

Speaker 4

Hi, Stefan. Good morning and thank you for your question. So as you well know, income taxes in Colombia are paid primarily in the Q2. So the bulk of our cash taxes we have already paid for this year. Now on every quarter we do have withholding taxes that are part of that cash tax payments.

Speaker 4

And so if we look at the Q4, we would expect on and about $10,000,000 to $20,000,000 of those to be paid for during the quarter and that is included and in line with the guidance we provided previously.

Speaker 7

Great. Thank you very much.

Operator

I'll now hand the call back to Mr. Andres Ocampo for any concluding remarks.

Speaker 1

Thank you, everybody, for your interest and your support,

Speaker 5

and we're always here to answer any questions you may have. Please reach out, and we encourage you to visit in our fields and our operations or call us anytime for further information. So thank you, and have a good day.

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Earnings Conference Call
GeoPark Q3 2023
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