GeoPark Limited

Good morning and welcome to the Geopark Limited conference call following the results announcement for the third quarter ended September 30th, 2023 at the 2024 work programme and investment guidelines. 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 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.geo-park.com. A replay of today's call may be accessed through this webcast 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. 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 US dollars unless otherwise noted. Reserves figures correspond to PRMS standards. On the call today from Geopark is Andres Ocampo, Chief Executive Officer, Veronica Davila, Chief Financial Officer, Augusto Zubilaga, Chief Technical Officer, Martin Torado, Chief Operating Officer, James Dekelman, Chief Exploration Officer, and Stacey Stimel, Shareholder Value Director. And now I'll turn the call to Mr. Andres Ocampo. Mr. Ocampo, you may begin.

Good morning, everyone, and thank you for joining our call. We are here today in Bogota with our team to report our third quarter results and next year's work program and budget guidelines. During the third quarter, Geopark invested $44 million, drilled 14 wells, and produced approximately 35,000 barrels a day equivalents, impacted by temporary production shut-ins in CP05, which were restored in late September. Production is today at approximately 39,000 barrels a day equivalent. The company recorded revenues of $192 million and adjusted EBITDA of $115 million, a margin of 60%, which means that for every dollar invested, Geopark generated approximately $2.60. As a result, net profits reached $25 million, or $0.44 per share. 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, it expects to exceed $50 million, including the announced dividend of $7.5 million to be paid in December. This should be above the target of 40% to 50% 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 million in cash on the balance sheet and a net leverage ratio of less than one time. 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 abrasal and delineation activity for the remainder of this year and next. The horizontal well campaign in Llanos 34, with the most recent well producing over 3,400 barrels a day, currently has two full-time rigs executing back-to-back wells and is expected to continue. The Toritos discovery in the Llanos Basin is flowing 1,300 barrels of oil per day and represents a new exciting stratigraphic play in the Paleocene, which we will continue to appraise and delineate. Sorzaleste, Another Paleocene prospect is showing positive preliminary logging information and will be tested in the next couple of weeks, may also open more drilling opportunities. The Halcon 1 well in CP05, which is showing positive preliminary logging information, will be tested in the next couple of weeks and will be followed by Perico 1 well in the same Paleocene plain and trench. They use a new play in Ecuador developed by our exploration team with three 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 Janus 34 with water flooding project and horizontal wells campaign, as well as on embracing and delineating the new place being opened by the 2023 program. As always, the work program and guidelines are flexible and can be adapted based on changes in oil prices or other conditions, as well as drilling results. We expect to invest $150 to $200 million to drill 35 to 45 wells and produce between 37 and 40,000 barrels per day, with production growth expected to come from Colombia and Ecuador, partially offset by Brazil and Chile, which have no capital allocated. We expect to generate between $420 and $550 million in adjusted EBITDA at $80 to $90 breadth. Approximately 20% to 30% of our CAPEX will be allocated to exploration, and the rest will be allocated to abrasal, delineation, and development activities, as well as facilities. We are also executing the third largest 3D seismic acquisition program in Colombia across two blocks adjacent to CP05, complemented also by an additional seismic program within the CPO5 block. We expect this large new seismic information will allow our subsurface team to define and map new potential prospective areas and 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 sheets. 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.

As a reminder, if you'd like to ask a question today, that's star followed by one on your telephone keypad now. First question comes from Alejandro Dimitris from Jefferies. Alejandro, your line is open. Please go ahead.

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. Then the second one is your production costs have been a little bit high this quarter. Maybe you can give us some kind of 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 South, how you're seeing Alcon, and what excites you in in the program that you have for the next 12 months, please.

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 Veronica. So for 2024, our average for the year will be between 37,000 and 43,000. 1,000 barrels of oil equivalent per day. That's around 1% to 10% increase from 2023. And when we look at each of the assets, Plataniso and Chile, they will be declining around 10% to 30%. As Andrés mentioned, there's no development capital allocated to these two assets. If we move to Brazil, in Brazil we expect flat production. Channels 34, it will be flat to slightly decline. And then in CPO5 and channels exploration blocks, we expect growing. So overall, Colombia and Ecuador production, we expect an increase of 3 to 11%. Thank you.

Thank you, Alejandro. Good morning. Oh, how are you? Moving on to your question on production cost. We've seen an increase in a production cost over the past quarters. A few significant drivers of this, on the one side, energy costs in Colombia that have risen given El Nino weather pattern. We saw a significant increase in the third quarter. It has since receded a bit and started to stabilize, but that accounted for about 50 percent of the increase that we saw in the third quarter, 23 alone. Additionally, the peso has appreciated, the Colombian peso has appreciated, it was about 10% in the third quarter. Also affected our local currency denominated costs, which are about 70% of production costs. One factor that is particular to the third quarter has to do with the composition of sales. So we have a drop in inventories for Putumayo and Oriente assets. Those have higher overall production costs than our Janus 18 assets, and so they move that averages, but those are, you know, factors that tend to even over time. All in all, for 2023, we still expect the consolidated production cost to be about $10 to $11 per BOE, in line with the guidance that we previously provided. If we look to 2024, We still expect to see pressure both from energy cost in Colombia and from inflation. The guidance that we provided yesterday within a work program includes $160 to $170 million 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.

Hey, Alejandro. Good morning. Andres here. So to comment on your question about which excites us from these new activities or this new place, we really believe these are You know, more or less the four or five 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 percent cost saving to the first one, and it was put on production a lot faster. is also flowing 3,500 barrels a day. That's really exciting, and having two rigs working on that play back-to-back also makes us really excited about that. In terms of the things that, you know, exploration opportunities have been opened up this year, all of them are slightly different and exciting for different reasons. The Toritos oil play is Guadalupe, Paleocene, formation stratigraphic type of trap. So, as you know, like it happened in Tigana and Hakana, which are mostly stratigraphic placed 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 abrasion and development drilling in that new opportunity. All of these plays, you know, we're getting results as we speak. Some of them have been testing for a couple of weeks. 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. Sorsal. It's an up-deep well from the discovery earlier this year in the Sorsal 1 well, so which is real Sorsaleste 1 well. It encountered about 40 feet of net oil pail in the Guadalupe Formation. It's a downthroned structural trap. If you remember, back in 2012 when we discovered the Tua Field in the Llanos Basin, the Tua Field was the first downthroned Fielding in 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 Source that is exciting because it's another downturn Structural trap that we discovered So right now as I said the login information is showing more or less 40 feet of oil pay with with no upper and oil wall on contact in that in that formation and 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 CP05, it's in the northern part of the block, 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 that we were drilling to hopefully prove that thesis. Again, this is a well that we're going to be testing in the next couple of weeks, but the login 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. So once Alcon is tested and completed, we're going to move to Perico 1. to continue delineating this new plate 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 trapping mechanism of the USAN inside of some of our blocks. And we've drilled already three wells, three successful wells following this model, producing Today the production in Ecuador is three times what it was last quarter. So we also think this opens up a lot of activity and opportunities for us to continue delineating and embracing 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 Dekelman, who's our new CXO, who recently joined the management team. He's with us on the call and will probably in the future be taking these questions. But, James, if you want to add anything I may have missed.

Excellent. Thanks, Andres. Thank you so much for the introduction. Alejandro, my thanks to you for the question. We appreciate that very, very much. You know, I'd like to begin by first saying that I'm very pleased to be a part of this leadership team, one of 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 three areas. One 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. You know, 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. 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 two key points. One is the volume potential of these traps and also the play repeatability. And what we're seeing in the Torito's play, for example, is clear repeatability within block 123, you know, therefore significant scope for additional volume potential as well as possible extension into CPO4.

Okay, that's great. As a small follow-up, because, Andres, you mentioned the pay at South South, but you didn't mention the pay at Alcon. Could you give us some kind of range on the pay on Alcon?

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.

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

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

The next question comes from Stéphane Foucault. The next question comes from Stéphane Foucault from Octus Advisors. Stéphane, your line is open. Please go ahead.

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. So I was wondering whether it gives us a sense of why you would expect production to be at the end of 2024 when the ANOS-123, 87, and Ecuador are in That would help us, I think, me to have a view on where 2025 could be in production. So that's my first question. Second, on 1, 2, 3, and 87, what do you think from what you see so far in the development program, what do you see being the production capacity at each of these fields? I'm afraid it's a 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 Q4-23? And if yes, how much? Thank you.

Hello, Stefan. This is Martin Terrado. 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 Veronica again. So for 2024, as Andrés mentioned in the initial remarks, the average will be 37,000 to 40,000 birds of all the equivalent per day. And as you can imagine, next year is going to have significant appraisal activity in this cover 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 two and seven appraisal wells. In Chano's exploration, three to nine wells. So at this point, that's as much as we can share.

So I think, Stefan, both the first and second question, 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, 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 abrasion, there's some risking associated with it. And you can see that the range of activity on each one of these delineation places is pretty wide. I mean, some of it goes to, I think in Ecuador, we're going to do something like two to seven wells. And I think in Janos exploration goes from three to nine wells. So that's a pretty wide range. And the reason for that is because we're in early stages. We're seeing what we're seeing. It's 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 de-risking side of the play. And hopefully 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. Also part of the production, as it was mentioned by Martin, it is offset by three 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. Hi, Stefan.

Good morning, and thank you for your question. So as you well know, income taxes in Colombia are paid primarily in the second quarter, 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 payment. And so if we look at the fourth quarter, we would expect and then about $10 to $20 million of those to be paid for during the quarter, and that is included and in line with the guidance provided previously.

Great. Thank you very much.

As a reminder, that's star followed by one, and the telephone keypad is going to the queue today. I'll now hand the call back to Mr. Andres Acampo for any concluding remarks.

Thank you, everybody, for your interest and your support, 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 at any time for further information. So thank you, and have a good day.