GeoPark Limited

Good morning and welcome to the GO Park Limited Conference Call following the results announcement for the fourth quarter ended December 31, 2019. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at this time, press star 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. If you do not have a copy of the press release, please call SARD, Verbinion & Company in New York at 1-212-687-8080 and we will have one sent to you. Alternatively, you may obtain a copy of the release at the Investor Support section on the company's corporate website, www.geo-park.com. A replay of today's call will be accessed at the Investor Support 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 risk and uncertainties that could cause actual risks 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 competitors 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 IAS standards and are stated in U.S. dollars unless otherwise noted. Reserves figures correspond to PRMS standards. On the call today from GeoPark is James F. Park, Chief Executive Officer, Augusto Zubiaga, Chief Operating Officer, Andreas Ocampo, Chief Financial Officer, and Stacy Simel, Shareholder Value Director. And now I'll turn the call over to Mr. James Park. Mr. Park, you may begin.

Thank you and welcome, everyone. We are with our executive team. united as ever in our efforts, but currently physically separated and calling in from our respective homes and locations. At the outset, we would first like to express our profound gratitude and admiration for the Geopark women and men who are working day and night pushing us through this downturn and continuously... protecting our shareholders, and positioning us for the new world on the other side. In six countries, our team moved with quickness and agility to protect the health and safety of our employees, contractors, and communities, and ensure that our hydrocarbons keep flowing to the markets. With creative logistical support, our office staff... but our field operations require men and women to be on site and have their hands on the iron. Our field teams again proved why they are the backbone of our company. Before opening up to questions, let's please look at four elements of our business during this first quarter. Firstly, our team continued to drive performance with solid performance Record production of 45,700 barrels per day, representing 16% growth compared to last year. Strong cash generation with an adjusted EBITDA of $78 million. And leading capital efficiency with $2.3 generated for every $1 investment. On certain higher cost mature projects within our portfolio, We took non-cash accounting impairments of $97.5 million, which made us record a net loss of $89.5 million for the quarter. Our team moved lightning fast into battle mode for the arrival of the global pandemic, the collapse in the world economy, and the flooding of the oil markets with unneeded and unwanted barrels. In addition to quickly protecting the health and safety of our teams and contractors, we worked with our neighbors and community to keep them informed of operations and risks and provide them with safety . Following our tested business model and track record, our seasoned team simultaneously attacked every component and dimension of our business. So far, more than $280 million of capital and cost savings have been implemented across the board with more coming. This included reducing our self-funded work program by $3 million, focusing on our most strategic assets like the YANOS-34 and CPO-5 blocks in Columbia, and other savings such as voluntary salary and bonus by our team and board. We also temporarily shut in 6,500 to 7,500 barrels per day of higher cost production to preserve cash and shareholder value . This also helped us minimize activity and the potential spread of the virus in the field and in our surrounding communities. Can be readily brought back on stream without suffering mechanical delays or reservoir damage. Thirdly, the underlying strength of our asset and key characteristics of our company provide a foundation to protect against and endure through this and other crises. Additional tools at hand include a strong balance sheet with $165.5 million of cash and safety net funding alternatives, such as a $75 million oil prepayment with $50 million committed and $130 million in uncommitted credit lines, providing us with liquidity if needed. Geopark's long-term debt profile has no principal payments until September 2024, and Standard & Poor's and Fitch both recently reaffirmed our long-term corporate credit rating at B+. We are also aggressively protecting our base oil price by effectively using hedges. With approximately 26,000 barrels per day and only 70% of our oil production, edged in the second quarter, and so far approximately 17,500 barrels per day, fourth quarters respectfully. Fourthly, as a long-term opportunity-driven company working in the most attractive hydrocarbon region today, we are looking ahead with excitement to the recovery opportunity to streamline and improve our overall business and more strongly position Geopark for continued economic growth and success. As always, we are protecting critical people, tools, and capabilities for the short, medium, and long term. And our flexible work programs, operational agility, and big inventory of organic projects allow us to quickly expand our investment plan as prices were the first step up at $35 plus breadth. We got a head start in this recovery effort by already closing on and integrating into Geopark the AmeriSol resources acquisition during January. This gave us additional important low-cost production, reserves, and high-potential acreage adjacent to and on... a new entry into the Putamaya Basin with production reserves, a pipeline, attractive exploration acreage, and a new partnership with Oxy. In addition, we went to the capital markets in January and raised a $350 million bond, which was oversubscribed more than six times by top-tier investors and achieved the lowest interest rate ever. for a single B-rated company in Latin America. Thank you, and we would be . Any questions you may have. And please be patient as we try to coordinate across the continent today.

At this time, I would like to remind everyone that if you would like to ask a question, to press star 1 on your telephone keypad now. Again, that's star 1 for any questions. We'll pause for just a moment to compile the Q&A roster. The first question will come from Robin Hayworth with Stifel. Please go ahead.

Hello there. Thank you very much for taking my question. Just a couple of questions, if I may. Just on the CapEx budget, I should be interested to know one last thing out of the capital budget. What is the highest returning opportunity in your portfolio that you're not able to do in the current environment? Secondly, the capital budget implies that you've ceased pretty much all drilling programs from now on, given that you've spent a large proportion of the 2020 budget. So when should we start expecting to see underlying declines in the portfolio, ignoring the shut-in barrels, obviously? And then thirdly and finally, and a bit more strategically, in terms of taking advantage of this downturn, you do have a wide footprint. Would you be expecting to use this downturn to add to the footprint, or would you be expecting to use it to kind of slim down to your core Columbia asset base? Thank you.

Thanks very much, Robin. Thanks for the questions. Can you hear me okay? This is Andres.

I can hear you fine, yeah.

Great. So the first question about our capex, I'm not sure if I got it right, but we're estimating roughly more or less $45, $50 million. And as you saw in our release, most of that, as you pointed out, most of that has already been invested. So really what is remaining is is very limited, around $5 million per quarter. But in this context of high volatility, in some cases, we are not even lifting some wells that go down because of either pump failure or things like that, which are pretty common in day-to-day business. So I would say our CAPEX has been done, has been compressed down to below what we would call a maintenance CAPEX. We're not, we just, there's just one work over rig in Janus 34 working today, putting back one well on stream. Job is done. Particularly or mainly because of the high volatility in oil prices. Brent was in the 20s less than 10 days ago, today it's at 30. So it is uncertain how fast or how well we could achieve any returns on any of those investments. So to when we could be thinking of starting to invest again, Luckily, we don't need levels, you know, over 40 or anything like that. We, I think Jim mentioned in the introduction, we don't price it firmly about, you know, at 35 or higher. We're ready to go back to work. So hopefully as soon as that happens or there's some clarity in the market that will happen and will be sustained, then we're ready to start putting or adding back investments into our portfolio. I don't know if that answers your question about CapEx.

Yeah, it does. Just, I guess, to clarify, I was also asking about between your old CapEx guidance of 70 and now sort of 45, 50, that 20 million or 25 million, what was it that's come out there? So what's the first thing that you do in the event of a slightly higher up price?

So some of those were some activities that cities, building facilities, some workovers we have planned. We have around six or seven workovers that we postponed or delayed. There were some seismic works that were still on the budget. We also had some other activities for licensing, things like that. No wealth. I mean, the previous budget or the $7 million budget already had no additional wealth on it. Only maybe one or two wealth in TPO5. So in this case, we're just having no new wealth. And also some... Those are the type of things. Most of them... With the exception of the workovers, most of them had no immediate production associated to them. Okay, thanks. Respect to the declines, as she pointed out, I mean, we have shutting production, and we expect that shutting production to counterbalance the impact of potential declines. So really, the production we're seeing is more or less flat throughout the year. but it will depend on oil prices. So if you assume a $30 Brent for the year, the production will remain, with the exception of the second quarter, will remain more or less in the levels of 40,000 bars a day per quarter. So you shouldn't be seeing declines because the shutting wells would compensate for that. In the second quarter... more or less 5, 6,500 to 7,500 barrels a day shut in. In the guidance we gave in our release, we're estimating that those are put back on at the beginning of July. So that means that those barrels are out for the full quarter. That is not what we expect. Hopefully, we will be able to bring those wells back on. Actually, At today's prices, it is very economic to put those worlds back. And by that I mean these 30 brands with a $6 differential on Baconia. That means, you know, $24 effective price in Colombia. Most of those bars that are shut in generate quite some cash flow at those levels, more than... let me see, almost $10 per barrel to be generated from those. So at these prices, we could consider bringing them back. But as you probably know, it's not so easy to put... I mean, you cannot be shutting in and shutting down wells every day. We would need some more clarity on how sustainable these prices are. So that those will remain. Be sure that we'll bring those barrels back on production. So if you assume... that those bars are not back on stream until the end of June, then production for the second quarter will be in the levels of 35,000, 36,000 bars a day. If you assume that they are put back on production at the beginning of June, it would be more closer to 30,000. And then for the rest of the year, it would be around 40,000 bars a day per quarter. I don't know if that covers your decline point. And then for the strategic aspect, obviously the most profitable and the biggest cash flow generation for the company in the market is Colombia. We're concentrating our a little activity in Colombia, particularly in Janus, mainly Janus 34 and CP05, and we expect that to be the case. We are significantly reducing or basically not investing in Peru, as you saw in the inferments in this environment. In particular in Chile and Argentina, we also did some inferments related to the oil assets because of these scenarios. We still believe it is the right time to be looking for opportunities. So, you know, we keep our eyes open and we look at the market, but obviously raising capital in this market is very tough as well. So, you know, we're probably concentrating more in Colombia at this time. But never close the door to any opportunities that may show up. And I don't know if that's the point you were referring to.

Yeah, that's very clear. Thank you very much.

Thanks very much, Robin.

Once again, if you would like to ask a question, please press star 1 on your telephone keypad now. Again, ladies and gentlemen, that's star 1 for any questions. We'll pause for just a moment. Okay, the next question will come from Stephanie Fluset with Octus. Go ahead.

Hi, guys. Two questions for me. One, just a clarification. So from what you said, you say all price remains at $30 a barrel until the end of the year. There won't be really any additional exploration wells in Colombia at CTO 8. My second question is around... I was surprised by the net back, which is basically lower, but operating net back is basically unchanged or even a bit up. So my question really is where has it gone down? It's probably not including the operating net back. So is it that you're forecasting lower OPEX, lower transport costs, or is it simply because you're seeing... better differential. Thank you.

Good morning, Stefan. Could you please repeat the first question? I have the second clear, but can you repeat the first one? I did not understand. The line is a little noisy.

It was just a clarification that at $30 a barrel, we should not expect any further exploration drilling, which I think was a question of foreboding, but just to make sure I got that clear. no more exploration during a 30-hour balance until the end of the year. Is that correct?

Yes, that is correct. In our $30 case, we're not anticipating any exploration trading. There may be something in KPO5, and it wouldn't be a... KPO5, we're keeping maybe... one appraisal well, one disposal well to increase production, and maybe one exploration well. But all those together wouldn't account for more than $3 million net to Geopark. And still it's unlikely that we would do that. So I wouldn't consider those, unfortunately, at least until the end of the year. And then to your second point in this slide. Sorry, yeah, the netback, your point is right. Basically, even in a scenario where we're shutting in production or that the production is lower, the netback is higher. Mainly there, and also if you take the actual operating cash flow, if you factor in the capex that is also lower, then the actual operating pre-cash flow is also much higher still. The main impact there is OPEX. It's a reduction in OPEX, where not only our GNA has been cut down by almost 40%, and also you need to include the fact we also cover a new company with its own GNA. So if you factor in that we're comparing to 2019 numbers where we didn't have that company in, then... But in... In the network, as you pointed out, the GNA is not included. But the main item there is OPEX. So we're cutting down our OPEX significantly. In the new assets we acquired, for example, in Putumajo or in GP05, Consolidated and Merge Tool was reporting $18 to $20 per barrel OPEX. We're cutting those down to $10 per barrel in those group of assets. In Argentina, in Chile, our OPEX is down 50%. We're targeting around $9.5 per bar, closer to $20. In Argentina, we're cutting down around 40% of our OPEX. And then in Colombia, in the other assets in Colombia, it's down by around 20% to 25%. So all those reductions... are generating the better impact on the net box.

Reduction has been structural, or would you see that coming back as soon as the price comes back?

Well, then... just net pulling jobs and things like that, but most of them are structural, structural changes, either renegotiating contracts or redesigning operations or things that are in that sense. So most of the reactions are permanent, efficiencies that we achieve. Thank you. Thank you, Stefano.

Once again, if you would like to ask a question, please press star 1. We do have a question from Ian McQueen with Aid Capital. Please go ahead. Ian, your line is open.

Oh, sorry, but I was on mute. So I'm just wanting to know about shut-ins and where they're occurring. I know you... but you have partners in Brazil and Colombia. Can you give us an idea of the BOEs per day that are going to be shut in in Brazil, Chile, Argentina, and then in Colombia where there would be shut-ins, whether it would be LA-34, CPO-5, or Plataniel? Thank you.

Hi, Ian. Good morning. Absolutely. For the shut-ins, more or less, but the breakdown of those roughly 7,000 or so barrels a day. In Chile, it's around 500 barrels a day related mainly to the oil production. The gas wells are still flowing with some small condensate that comes along with that. In Argentina, related to also the oil assets. In Brazil, on the oil, it's 150 barrels a day, which is the one oil field that we have there and some small oil that is produced by Manatee. And then in Colombia, it's more or less 1,000 barrels a day or so related to Platanillo, that's the Putumayo production. And then in Janus 34, next to Geopark, it's something around 5,000 to 6,000 barrels a day. And that is related to mainly the smaller fields, the higher water cut fields like , and those type of fields. And then the most recent ones, which we did this quarter, were related to Tua and the higher water cut wells in Tigana and Hatana. So those are mainly the wells that are shutting right now in Denver. The report total net to geopark is around, as I said, 5,000 to 6,000 barrels a day.

That's great. Thank you very much, Andres.

And to give you an idea of the impact here, you know, most are maybe in a gross basis around 10,000 barrels a day or so. And water that represents almost 100,000 barrels a day of water. That's why the impact of the of these wells on the net back is much better. We shut in production with a 90% workup.

Great. Thank you. Okay. Thank you.

At this time, I would like to turn the conference back over to James Park for any closing comments.

Thank you, everybody, for your interest in Geopark and your continued support of our company. Once the world's borders begin to open again, we encourage you to please visit and call us at any time for more information or comments. Thank you, and please stay healthy and strong.

Ladies and gentlemen, thank you for participating. You may all disconnect.