GeoPark Limited

Q4 2023 Earnings Conference Call

3/7/2024

spk00: Good morning and welcome to the Geoparks Limited conference call. Following the results, announcements for the fourth quarter ended December 31st, 2023. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at this time, please press star 1 on your telephone keypad. If you would like to withdraw your question, please press star filled by 2. If you do not have a copy of the press release, it is available 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 the 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 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 US 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 Zibilaga, Chief Technical Officer, Martin Tirado, Chief Operating Officer, James Deckelman, Chief Exploration Officer, and Stacey Stiemel, Shareholder Value Director. And now I'll turn the call over to Mr. Andreas Ocampo. Mr. Ocampo, you may begin.
spk01: Good morning, and thank you for joining our fourth quarter 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 fourth quarter allowed us to recover volumes, replenish 2P reserves, and build a healthier balance sheet. We invested $200 million in capital expenditures during 2023 to drill 48 gross wells, resulting in a 2P reserve replacement ratio of 110%, an average production annually of 36.5 thousand barrels of oil per day equivalent. Thanks to the restoration of production from the Indico 6 and 7 wells in the CPO5 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 fourth quarter production to an average of 38.4 thousand barrels of oil equivalent per day, which is 10% higher than the third quarter. For the full year 2023, Geopark generated $452 million 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 2.3 times adjusted EBITDA, proving the quality of our asset base and consistent capital efficiency. We ended the year with a significant cash position of $133 million, further illustrating our financial quality. Our net leverage of 0.8 times was well below our long-term target of one to one and a half times adjusted EBITDA, and we have no principal maturities due until 2027. We ended 2023 with a net income of $111 million, 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 million 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 2018. We have also recently embarked on that journey with a carbon disclosure project, CDP Climate Change, participating for the second 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 CPO5 block with the Alcon 1 well and the Perico 1 well, both which tested oil, proving our team thesis of a potential continuation of the Tigana-Hakana oil play. into the northern part of the CPO5 block. These were long-awaited results, and we're excited and encouraged by these wells so far. We expect to continue upraising and de-risking this new play going forward. We're also having encouraging results in Ecuador, with oil production being tested at Perico Norte 5 well, which means four out of four successful wells in this new used sand play developed by our team. Same in the Janos exploration acreage, where more wells and more production are expected to come from the four new discoveries of last year. 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 million 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 these great investments, 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. 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.
spk00: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to remove your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. And our first question goes to Stephanie Forecard of Octus Advisors. Stephanie, please go ahead. Your line is open.
spk05: Morning, gents and gents for taking my question. I've got a few. First, I think you touched base 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. I'm thinking about well-test results at Halcon 1, Zorzal ST2, and some results as well in Julinx. I was wondering whether there's been any update or something worthwhile to share on those. On the horizontal well at Lianos 34, how are things at the moment? Is it tracking performance better than expected? I'd be also curious to have your view, given it's quite important for production. And then two perhaps simple accounting questions. I saw in the account that there was an impairment, I think, of $13.13 million. I wonder what is that? Maybe Chile, maybe not. And there was also a write-off of $8 million 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.
spk01: Hi, Stephanie. So I'm going to take the horizontal wells question.
spk03: So, so far we have already drilled seven horizontal wells in the channel 34 in the Mirador Formation in the Higana field. So horizontal wells represent more than 20% of the production of channel 34. So it's around 10,500 bottle of oil per day. Currently we are drilling the first horizontal well in the Higana 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 five to seven more wells this year. And in parallel, we 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%. So, Stefan, good morning. This is Martin Tarrado, and I'll take the question on Alcon and Sorsaleste II, and then let Jaime go over the impairment question. So, for Alcon, basically, we're talking about CTO5. So, we have two wells, Alcon I and Perico I. Alcon is right now producing about 120 barrels of oil per day 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 630 barrels 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 Perico, 10 feet. What has happened in Alcon is that the well was drilled and completed, but the operator had about 30 days of delay to put the well in production. 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 logs, we know the oil is there and they were really encouraged. Furthermore, the rig that is drilling right now, Indico 3, probably has about 25 to 30 more days to go, and it will go back to this extension of Hakana and Tigana to drill the well Cisne. So we're very excited about those results, and I'll call it just an operational setback that we're discussing with the operator. Concerning Sorsal, In Sorsal, the Sorsal 1 continues to be stable, about 660 barrels of water per day, 4% water cut, beautiful API gravity at 33. So that well is doing good. When we drilled Sorsal 2, we did hit a fault and they were 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. Potentially, maybe even a world quarter on the web.
spk01: Yes.
spk02: Stefan, hi. This is Jaime. Thanks for the question. I'm going to cover the two angles. The $13.3 million impairment that you saw effectively is associated with Chile, as you rightly I hypothesized. It's basically the difference between the transaction that we did and what we had at the books at the time. The write-off that you're seeing in the fourth quarter is $8 million is associated to a well in Danos 87, that Tororoi well. Those are the two points. Thank you.
spk01: Great. So that was the one from last year. It was the one from last year. that flowed non-commercial volumes. And so we took time to analyze and evaluate and then ended up deciding to plug and abandon the world. That's why you see the write-off now and not before.
spk05: Thanks a lot, guys. Most appreciate it.
spk01: Thank you.
spk00: Thank you. The next question goes to Roman Rossi of Canaccord. Roman, please go ahead. Your line is open.
spk04: 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 market discount this quarter. So I just wanted to understand what are you expecting for 2024 in that regard? Sorry. Yeah.
spk02: Hi, Roman. This is Jaime. What we're seeing in terms of our differentials, they're actually pretty much stabilizing, would say, around the 10-year averages. You know, Baskonia 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 dollars 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, you know, year-to-date. Headline brand price is around $81 a barrel. When you look at 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. And that's really what we're seeing. Thank you, Roman.
spk04: Great. Great. And the second question is you just announced. Are you expecting to initiate and complete in first quarter of 2024, or are you assuming that you will have some of these during the second quarter of the year?
spk02: Yes. Thank you. Thank you, Roman, on that. I think the overall context was provided by Andres in his opening remarks. In terms of the execution, what we're seeing is that this should likely occur. We're going to initiate it in the next few weeks. 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 Dutch auction is going to be completed around mid-April, mid to late April. That's what we would expect. So that's the timeframe that we're operating with at the time. Thank you.
spk04: Okay, awesome. Thank you.
spk00: Thank you. We have a question from the webcast from Daniel Guardiola at BTG Patchewl. 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? Thank you.
spk03: Good morning, Danielle. This is Martin Terrado again. If we talk about SHANOS34 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 two 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. Indico 3 is a well that is development well the last development well of the indigo indigo continues to be very flat and good production all the wells are flowing naturally around 23 000 barrels gross so in this one we expect order of magnitude something similar to the previous well and so that that's a the short term that we got The rig will continue throughout the year. So as we mentioned in the previous question, from the well Indico III, 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 Larx, followed by some additional appraisals in Cante Flamenco, and then based on the results that we continue to have some
spk00: additional drilling in the continuation of hakana tigana great thank you 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. $50 million. Thank you.
spk01: Thank you, Danielle. 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 place in the region, one of the most underdeveloped ones. So obviously looking at opportunities in a place like that is important for us, and we're actively looking at ideas there. And yes, that's one of them. So it sounds like an interesting opportunity for a company like ours.
spk02: Daniel, and with regards to yield, you know, 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, you know, 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.
spk00: Thank you. And as a reminder, if you would like to ask a question, please press star, fill it by one on your telephone keypad. We'll pause for just a moment. It appears we have no further questions. I'll now hand back to Andreas for any closing comments.
spk01: 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 fields and our operations or call us any time for further information. Thank you, and have a good day.
spk00: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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