GeoPark Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 7, 2024

There are 7 speakers on the call.

Operator

Good morning, and welcome to the GeoPark Limited Conference Call following the results announcement for the Q3 ended September 30, 2024. After the speakers' remarks, there will be a question and answer session. At the Invest With Us section 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. 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. Reserve figures correspond to PMRS standards. On today's call from GeoPark is Andreas Ocampo, Chief Executive Officer Jaime Caballero, Chief Financial Officer Augustus Zuberlaga, Chief Technical Officer Martin Toretto, Chief Operating Officer and Maria Catalina Escobar, Shareholder Value and Capital Markets Director. And now I'll turn the call over to Mr. Andreas Ocampo.

Operator

Mr. Ocampo, you may begin.

Speaker 1

Good morning, everyone, and thank you for joining us to review together our Q3 2024 operational and financial performance. Our net revenue for the quarter was 159,000,000 dollars down 16% from the Q2, impacted mainly by lower realized oil prices and production. Despite these factors, our financial discipline allowed us to maintain robust margins and profitability. Our adjusted EBITDA for the quarter was close to $100,000,000 representing a strong 63% margin. In addition, the adjusted EBITDA for the 1st 9 months of 2024 amounted to 339,000,000 dollars representing approximately a 2% increase compared to the same period of 2023.

Speaker 1

Bottom line net profits for the quarter of $25,000,000 also exceeded the same period of last year. This quarter was also marked by a significant cash flow generation, which translated into a cash build of more than 2 times compared to 3 months before. From $66,000,000 of cash on June 30 up to $123,000,000 on September and $140,000,000 in October, what reinforces our strong liquidity and solid balance sheet. Our net leverage ratio remains low at 0.8x, and we have no principal debt maturities until 2027. This position provides us with financial flexibility to manage through market volatility while continuing to invest in high value projects.

Speaker 1

We have also continued to use our cash flow to return value to shareholders and maintained our quarterly dividends of $7,500,000 announced yesterday. With this, our total cash distributed to shareholders during this year will amount to $73,000,000 which represents approximately an 18% capital return yield. With respect to some of our key operational highlights, in Colombia, we focused on development and appraisal activities in the Jarnos 34 block, which remains one of our core assets. We advanced our water flooding campaign and expanded facilities, both critical steps to enhance production and improve recovery rates. In CPO-five Block, we drilled 2 wells, further advancing our exploration and development goals.

Speaker 1

In our Genos exploration acreage, we continued with the appraisal and delineation of the Toritos and Visbita fields. The entire complex is currently producing approximately 4,000 barrels a day gross. We have currently 2 drilling rigs on-site and expect further activity before year end and into 2025. Also in Colombia, we are looking forward to spot our first exploration well in the Putumayo Basin later in November this year when we will drill the Bienparado Norte 1 exploration well. Our recent acquisition in the Vaca Muerta and conventional alloy play, which became effective on July 1, has marked a key milestone in GeoPark's expansion in Latin America.

Speaker 1

Vaca Muerta is today the most attractive hydrocarbon play in the entire region. During the Q3, the PADD 4, which included 4 horizontal wells, was drilled, completed and was put on production in October. The block achieved a gross average production of 12,600 barrels of oil per day during the quarter and reached 15,400 barrels a day equivalent, its all time record in August. The operator is currently drilling the 4 wells in PADD 9, which is expected to finish in December. In addition to the reserves development activities in Matamora, GeoPark and Phoenix have also finished the drilling and completion of the 1st exploration pad in the Confluencia block in the province of Rio Negro.

Speaker 1

This pad includes 3 horizontal exploration wells. These wells are currently testing and cleaning up, expecting results in the upcoming days. It is also important to mention that production and cash flow from GeoPark's working interest in the Vaca Muerta blocks belong to our company since July 1. However, such production and cash flow will not be consolidated into our financial statements until the transaction is closed, which is expected to happen before year end. Therefore, none of these results have been included in our reported 3Q financial statements.

Speaker 1

As anticipated and to support the capital needs of our new assets, GeoPark has secured important local capital market approvals in Argentina, including a AA plus Argentinian credit rating and an authorization to issue up to $500,000,000 in local debt securities. This provides financial optimization and flexibility to continue developing these high potential assets. Looking ahead, we're on track to release our 2025 work program and investment guidelines before year end. This framework will outline our strategic priorities for sustainable growth and capital allocation across our newly expanded and upgraded portfolio. We see particular promise in our new assets in Vaca Muerta, coupled with ongoing focus on optimizing our core operations to maximize long term value.

Speaker 1

Thank you for your continued support and confidence in our company. We're now ready to take any questions you may have.

Operator

Thank Our first question comes from the line of Vincent Belanger of BBI. Your line is now open. Please go ahead.

Speaker 2

Hi, Andres and Andrew Bartim. Thank you very much for the time and taking my questions. I basically have two questions regarding the Phoenix GB. You commented that Confluence will likely put out slow results soon. Up to what you can comment, how do you see the results so far?

Speaker 2

Do you see these as encouraging? Do you think that you will be able to communicate the production results to the market before December? And my second question is on Matamoros Norte. We were looking at the Secretariat de Maria website and we saw that you produced 13.7 barrels of oil equivalent per day in the month of September. You also mentioned that PADD 9 will start to produce at the end of December.

Speaker 2

So what should we expect for output there in Matamoros Norte until the end of the year? It should stay about close to 14,000 barrels of oil per day. Thank you very much.

Speaker 3

Good morning, Vicente. This is Martin Terrado. Nice to hear from you. When we go over Confuencia Norte 1, yes, Confucian Norte 1, the results so far look encouraging. It was on track and according to the plan, the drill, the complete of the wells.

Speaker 3

This part has 3 wells. Some of the paths in the Matamoros have 4. This one has 3 wells. The drilling had around 3,000 meters of each horizontal section drilled according to plan. And one of the things that the operator did differently and we agreed was to be doing fracs with more intensity.

Speaker 3

The numbers are basically from £2,300 to £3,000 per frac. As you know, and we are sharing and learning, unconventionals, it takes about 45 to 60 days for the flow back and the cleaning of the wells. And it's been about a little bit over 2 weeks. So, so far, the results are encouraging. And we will share the results before December for sure.

Speaker 3

So that's about the recent path that has been completed. As Andres mentioned, right now, we're drilling pad number 9. That's back into Matamora. This path has 4 wells expected to finish drilling all 4 wells by December. Again, we are on track as we already drilled the operator already drilled 2 of the 4 wells.

Speaker 3

And when you asked the question around the average production for September, what's the production for October? It was similar values around 13,600 barrels of oil equivalent per day. In October, it was basically no new wells stabilizing. And so that's what we had. We will see increased production as Confluencia Norte kicks in and Matamoros wells continue to stabilize.

Speaker 3

But overall, like we mentioned in the past, we are excited about it, and we expect to be around 13,500 to 14,500 barrels of oil equivalent by the end of this year.

Speaker 2

Great. That's very helpful. Thank you so much. Nice talking to you guys again.

Operator

Thank you. The next question comes from Alejandro Demikslis, of Jefferies. Your line is now open. Please go ahead.

Speaker 4

Yes. Good morning, guys. Thank you very much for taking my questions. Two questions, if I may, please. The first one is on a bit of a follow-up on Confluencia, Martin.

Speaker 4

When we look at Matamoros, we have seen a lot of variability in terms of the initial production from the different wells. So what would you expect to be like a good flow for Confluencia? And what kind of gas levels can we expect from there? That's the first question. And then the second question is, how should we think about, say, production and CapEx required for Llanos 34 each of next year?

Speaker 2

[SPEAKER CARLOS ALBERTO PEREZ DE

Speaker 3

SOLAY:] Alejandro, nice talking to you again. So when we look at Confluencia, the IPs that we have overall for Vaca Muerta are in the order of 7.50 barrels of oil per day to 1500 barrels of oil per day. So this is exploration. We will see where within that range they fall, but that's order of magnitude where we expect to be on IPs. We had some wells in Matamoros that Rodrigo mentioned in the past that were beyond that range.

Speaker 3

We have 2 wells that produce 2,003,000 barrels of oil per day. So we have some wells that are on the top percentile of oil of Vaca Muerta in Argentina, and that's in Matamora. But order of magnitude, that's what we have in our business plan. And usually, we are within the P50 to the P10 range. So more to come on that pretty soon.

Speaker 3

And then the question related to production and CapEx.

Speaker 1

[SPEAKER JOSE RAFAEL FERNANDEZ:] Sorry, Dan, the gas component in Confuencia, the goal?

Speaker 5

[SPEAKER CARLOS ALBERTO PEREZ

Speaker 3

DE SOLAY:] And the gas component for Confuencia, for now, we expect to be similar to what we have in Matamoros. It's usually when we go from barrels of oil per day and we take it to barrels of oil equivalent, order of magnitude add about 5%. Does that help, Alejandro?

Speaker 4

Yes. That's very helpful.

Speaker 3

Okay. And I think that your second question was around channels 34 production and CapEx. So like Andres mentioned, we will post our work program for all of GeoPark in the next weeks. But what we can share with you is where we are aligned with our partner. And then you have seen throughout the year that we went to 1 rig.

Speaker 3

We have 1 rig running right now in channels 34. We're in agreement that we will continue that rig all of next year, mainly drilling infill wells, some appraisal wells, follow ups to good wells that we drilled recently, especially in the Curukuku field. And concerning production, we should expect slight declines. As you know, the field is getting more mature. And with the level of activity of infill drilling, the focus that we have on water flooding and workovers, order of magnitude around 15% decline.

Speaker 3

[SPEAKER MARTIN PEREZ

Speaker 4

DE SOLAY:] For the whole of Llanos 34?

Speaker 3

[SPEAKER MARTIN PEREZ DE SOLAY:] For Llanos 34, yes.

Speaker 4

Okay. That's clear. And as a bit of a follow-up there, because your partner has been talking more about polymers into Jan 34 and so on. So is that something that we can see in 2025? Or is that a more medium term plan?

Speaker 3

No, it's something that we will be seeing in 2025. So we're working the details to perform a pilot in the second half of the year. That's basically adding polymer to the water so that we get better conformance. 2025. Yes.

Speaker 5

Thank you. Yes.

Operator

Thank you. The next question comes from Daniel Guardiola of BTG. Your line is now open. Please go ahead.

Speaker 6

Thank you and good morning, Andreas, Jaime and the entire team. I have a couple of questions. The first one, I would like to touch on costs. Looking at the quarter, we saw once again a deterioration of your OpEx per barrel to levels close to $16, $17 per barrel. And if we look at the last 2 years, the OpEx has almost doubled.

Speaker 6

And I wanted to know, first of all, if you can share with us what is driving this deterioration in costs? And 2, what is the company planning to do to basically tackle these significant increase in costs? So that will be my first question. And if you want, you can answer it and then we can I can follow-up with the second one, if that's okay with you guys?

Speaker 3

Absolutely, Daniel. This is Martin again. So when we look at our OpEx on a dollar per barrel, a couple of comments. One is our goal is to stay on

Speaker 5

the main assets in the

Speaker 3

order of $10 to $12 per barrel range. What has happened in the past 2 years and what you are referring to, if we look at 2022 in channels 34, we are producing about 350,000 barrels of fluid per day. Our consumption of energy was 50 megawatts. Right now, our total fluid has increased 40% from those 350,000,000 and our megawatt requirements has increased by 20%. So clearly, when we look at our OpEx, around 40% of the OpEx is energy cost.

Speaker 3

Since we connected to the national grid, one of the visions and the objectives that we had was to tie and lock fixed price energy cost. Unfortunately, the 1st couple of years and where we are today, we are with a spot price. And in Colombia, we had El Nino, so the energy prices have gone up. In addition to that, of course, we have inflation and exchange rate. But those are, you want to say excuses or the things that have happened.

Speaker 3

What have we done? And I'm going to let Jaime complement later on, but we're working and we're locking energy prices so that this volatility and paying more than ARS 900 per kilowatt hour doesn't happen now that we have windows and we can lock that. We have also looked and we're looking at reviewing where we have OpEx in places where we can purchase facilities. For example, in Nizhana's 123, we had 0 production about 1.5 years ago. We got 4,000 barrels on production right now.

Speaker 3

All of those facilities were rented, and we're purchasing those sections of the facilities that have quick payouts, and they make sense to keep. And of course, we're reviewing also with our supply chain group, our contracts and looking at opportunities. So again, I want to make sure that you take it that the goal is to stay between $10 $12 per barrel range in the next years.

Speaker 5

And to complement on that, good morning, everybody. This is Jaime, Daniel. On the energy side, I think it's clearly one of the biggest levers. One of the things that we're seeing is that the market is evolving. Following El Nino and all the kind of crisis that we had at the middle of this year, the market is stabilizing.

Speaker 5

And when you look at energy rates that can be secured for the next number of years, actually long term contracts are becoming very attractive, right? And they are significantly under what we expected. So the possibility of locking in rates that secure the clean energy for our fields, particularly for Dhanos 34 is something that we're looking into and that is going to help us a lot to mitigate that increasing trend of energy costs associated to the enhanced recovery of the field. I think the other angle that we need to take into account when you see the evolution of lifting cost is that there is a component associated to what I would call immature operations, which is all the exploration fronts that we have opened currently. Those exploration fronts that we have in the periphery of Llanos, in Putumayo and in Ecuador are operations that don't benefit from economies of scale and from the sorts of systematic supply chain approach that you can have in DANOS 34.

Speaker 5

And they are affecting the consolidated OpEx per barrel. To the extent that those operations mature into appraisal and development, we should expect to capture the economies of scale associated to a mature operation and that's going to help as well. So those are the two things to consider as we look at the long term prognosis of OpEx per barrel. Thanks, Daniel.

Speaker 6

Thank you, Martina. Jaime. My second question is on Brazil. I mean, this is the 2nd consecutive quarter where you're posting 0 production from Brazil. And I wanted to know if you can provide us an update on what's going on in Brazil and what are your expectations going forward?

Speaker 3

Yes, Daniel. So latest, we have been communicated by the operator. The day that we had to restart operations was late October. And 2 weeks ago, they shared with us that the firefighting and additional maintenance is required. So the new date is late February.

Speaker 3

And as you mentioned, this is 1100 barrels of oil equivalent per day that we had in our plan for all of 2024, and it's been shut in since middle of March. So the new date that we're expecting is restart early March.

Speaker 6

Thank you, Martin. And if I may just squeeze a last question on Argentina. And I would like to know your thoughts on the duplicate projects, which is eagerly expected or anticipated by most of the producers. And it would be great if you can share with us how do you see this project progressing? And when do you expect now the project to be fully online for you guys to start shipping additional barrels of oil?

Speaker 6

And also it would be great if you can share with us what is the total capacity that you have secured in this project? And if you foresee any potential to use additional spare capacity in 2025?

Speaker 5

Sure, Daniel. This is Jaime. So I guess let's start from the baseline. Our evacuation efforts around Vaca Muerta are going well. You see that we're having production that is very much in line, if not even better than what we expected a few months ago with the sort of results that we're getting from the different wells.

Speaker 5

Currently, where we are is we're in a place that around 50% of our volumes currently are being transported through our own contracted capacity with Old El Val. That's around currently that available capacity is at around 7,000, 700 barrels a day. The remainder, the bulk of it, we are using Oldelval as well, but through 3rd party capacity that make them available to us. And there's a little bit a surplus that we at times we use through trucking. And actually, it's a good problem to have because it actually means that production levels are higher than what we anticipated, right?

Speaker 5

So it's good. That in total means that we have secured currently through those different mechanisms our own capacity in Old El Val, 3rd party capacity in Old El Val and trucking capacity, basically what is the about 15,000 barrels of evacuation available. Old El Val, the duplicate component is expected to come online around March. That's kind of where we are. There's been no change to that.

Speaker 5

Some we go back and forth around this. And as you say, you I know you have other industry sources, but there's a broad consensus that it's still around that time, March. If there are delays, eventually, it could go into April, but it's in that time frame. And we feel pretty confident that that's going to be the case. In our case, it brings an additional 9,000 barrels a day of evacuation capacity, that's net, net to GeoPark to our own barrels, which puts us at 24 MBV, which is significantly more than what we expect to be producing at that time.

Speaker 5

So all in all, our midstream efforts are going well and are ahead of kind of our production volumes as they need to be. Thanks.

Speaker 6

Thank you, guys.

Operator

Thank you. We now have a written question from Stephane Borkode of Uptis. What is the current production? How do you see 2P reserves at the LL34 at year 24 directionally? Is this about 2P reserves at year 23 minuteus production?

Operator

Or could there be technical revision impacting reserves free? Do you see potential production growth in Ecuador in 2025? And any update on the biopagan Norton 1 exploration well, Cantaflamenco atp05 and SIR and Coraco? Thank you.

Speaker 3

So thank you, Stephane, for the questions. I think I wrote them all. And if I miss any, we'll make sure that to come back. So the first one, for sure, we took it. So what's the current production in channels 34?

Speaker 3

And where do we expect to be on reserves? For the full year for channels 34, net to us, we expect to be in the order of 22,000 barrels of oil per day to 23,000 barrels of oil per day. That is basically along what we had in mind on a field that is getting more mature. A couple of data points that are worth mentioning, this was a very successful year, 2024, on horizontal well drilling, more intense than previous years on water flooding, good results on workovers. And as many of you know, we went down from 3 rigs to 1 rig.

Speaker 3

So what we've seen this year is a decline in the order of what we mentioned before, around 15%. And when we think about reserves, it's too early to tell. As you all know, we communicate reserves in the Q1 of next year. What we can say is that we already started our reserves certification. And based on what we've been discussing throughout the year, we have some positives like water floating and horizontal wells.

Speaker 3

And also some things that we're getting some quicker water cuts and some things that are not as good. So we will see. Outside of channels 34, we have good results on the channels exploration wells and encouraging results on the follow ups appraisals that we have. So from a reserve Stefan, you can probably understand that there's not much that we can share at this point. If we move to the next question around production potential growth in Ecuador.

Speaker 3

In Ecuador, with the two blocks that we have overall, we have around 4,000 barrels of oil per day on production. We did drilling and workovers. We finished the campaign. And the production growth that we see for now in the Perico block, it's around water flooding. Some of the wells, we can see that they need some pressure support.

Speaker 3

So that's coming as a discussion with our partner for next year. And in Espejo block, we're looking at the recent wells that we drilled, and we'll see what we propose for next year. When we move to Bienparado, Bienparado Norte, again, it's a well in Putumacho 8. Like Andres mentioned a few minutes ago, that's to Platanillo to the west of Platanillo. Civil works have been completed.

Speaker 3

The rig is right now mobilizing, and we expect to spot this well in the second half of November. So pretty quick, we will be spotting that well, and we have a second well that we're finishing the platform. So for sure, 2 wells. The Bienparado Norte is stratigraphic structural play. We're targeting the end sand.

Speaker 3

I'm very excited about that. So again, more moves to come by the end of the year for sure in the next call. And I think let me see, Cante Flamenco II. Cante Flamenco II is an exploration well that we drilled and completed in the CPO-five block. The target for that well was Mirador.

Speaker 3

This is in the northern part of the block. As you all remember, a big block, 500,000 acres. The main target was Mirador. Secondary target, Uvake. Uvake is the same formation that we have in Indico producing 40 API gravity flowing wells.

Speaker 3

The results of the drilling were really encouraging in Uvake. Uvake found oil with a water oil contact. This is the first time that we find Uvake on the east side of the Alto de Metica. We tested that Uvake, it gave us around 34 API crude. Water contact was very close.

Speaker 3

So right now, the well is shut in, waiting on a workover. The most encouraging thing is that it opens our geologists and engineers' eyes to look at, okay, what other opportunities are because clearly, oil was flowing through and moving there 1000000 of years ago. So next step on Canteflamenco 2 is workover program is coming before the end of the year. We're going to isolate the UVAQUA and test the Mirador. Mirador, again, was the primary target where order of magnitude we found 10 feet of net pay.

Speaker 3

I think you asked us about Curukuku. Curukuku 2 is sorry, Kurukuku 4. We drilled first the well number 4. It's an appraisal or follow-up well in the channel 34 to Kurukuku. The well is producing with very good rates in the order of 800 barrels of oil per day with 40% water cut.

Speaker 3

And we are aligned with our partner and working so that before the end of the year, we go back to this platform and drill another Kurukuku. Let me see. You asked, Casa, also around Toritos Sur. Before I jump into Toritos Sur, I want to share a little bit overall where we are in channels 123. And Andres also mentioned it.

Speaker 3

So just to reinforce that channels 123 exploration block where we had zero production about 18 months ago. Right now, we're producing in the order of 4,000 barrels of oil per day. We have 2 rigs running, 2 platforms, 1 is Doritos and the other one is where we have Bizmita and Saltador. This is one of the blocks where going back to previous questions, where purchasing farm facilities to reduce our OpEx. And the wells that we drilled recently have have performed really well, Toritos 2, Toritos Sur 1 and Visvita Este, all three of them are giving us around 1500 barrels of oil per day.

Speaker 3

So we continue appraising these discoveries. And for next year, we will continue with drilling activity. If you want to know specific how Torito Sur 1 is doing, That well right now, it's producing in the order of 4.50 barrels of oil per day with less than 10% water cut. And I think that we covered all the questions, but at least if we missed any of them, let us know.

Operator

We have another written question, which says update on the surcharge of the non dilutables of royalties on Colombia.

Speaker 1

Sorry, can you repeat the question, please? Operator, can you hear us here? Can you repeat the question, please? Hi, operator. Can you hear us okay?

Speaker 1

Okay. So I think we have a technical problem. The operator cannot hear us, but we understand that investors So there seems to be a problem with the operator. She cannot hear us, but we apparently, investors can hear us. We received messages from people confirming they can hear us.

Speaker 1

So we'll try to answer the last question. We understand what's about the surcharge in Colombia. Miguel, do you have any writing?

Speaker 2

Yes, an update on the surcharge.

Speaker 1

An update on the surcharge? Great.

Speaker 5

So on the tax front,

Speaker 3

the surcharge

Speaker 5

estimate that we're having for this year is of 10%. Remember, the context around this is that with the tax reform, there is a scale depending on the oil price average for the year, you end up classifying under a different kind of surcharge bracket. Given oil price evolution over the last quarter and the expectation that we have for the year, we believe we're going to end up on that 10% bracket. And that's kind of unchanged versus where we were a few months ago. I understand that part of the question is also around the treatment of royalties.

Speaker 5

And as we've said before, the courts in Colombia have pronounced themselves on that. And the project that the tax reform included didn't pass through the courts. So the treatment of royalties is unchanged versus what we had in the past. The only component of the tax reform that applies to us is a surcharge and it's at 10%. Thanks.

Operator

We have no further questions. So I'll pass back to the management team for any closing remarks.

Speaker 1

Thanks, everybody, and we apologize for the technical difficulties. Hopefully, all of the answers all of the questions were answered. If anybody had any pending questions that were not completed, please feel free to reach out to us directly. So thanks very much for joining and your support of our company, and have a good day.

Operator

Thank you all for joining. That concludes the GeoPark's conference call. You may now disconnect your lines.

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