Good morning, welcome to GeoPark Limited conference call following the results announcement for the Q1 ended March 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, press star one on your telephone keypad. If you would like to withdraw your question, press star two. If you do not have a copy of the press release, it is available at the Invest With Us section of the company's corporate website at www.geopark.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 report 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.
Reserved figures corresponding to PRMS standards. On the call today from GeoPark is Andrés Ocampo, Chief Executive Officer, Veronica Davila, Chief Financial Officer, Augusto Zubillaga, Chief Technical Officer, Martin Terrado, Chief Operating Officer, and Stacy Steimel, Shareholder Value Director. Now I'll turn the call over to Mr. Andrés Ocampo. Mr. Ocampo, you may begin.
Good morning, welcome everyone to our Q1 results call. We're joining with our team here in Bogota, where we just celebrated our 10th anniversary in Colombia and our 20th year as a company. We're proud of our accomplishments so far. Today, we are the second largest operator in Colombia with about 8% of the country's oil production, and are excited about the future in Colombia and in Latin America as well. During the Q1, we suffered some temporary production shortages, particularly in CPO-5, due to matters that are beyond our control. We lost approximately 2,400 barrels a day of production from Indico 6 and Indico 7 wells, and have been working on assisting the operator to get those two wells back online as soon as possible.
As a result of these shortages and as previously announced, with the operator's new expectation that these wells may not be back online before July, we had to revise our full year production guidance down to a range of 38,000-40,000 barrels a day. Despite these challenges, we were able to adapt quickly, streamline our capital allocation, and continue reducing our cost base to maintain our cash flow generation guidance. Following that, maintain our shareholder return program unchanged. During the Q1, we invested $45 million to drill 12 wells, all in Colombia, including wells in new exploration acreage in the Llanos 87 block and the successful drilling of the first horizontal well in the Tigana field in our core Llanos 34 block.
This first horizontal well was a great success, executed within budget and within time, and now flowing about 3,000 barrels a day with barely no water. In less than 2 months, the well has accumulated 50% of the production needed to recover the investment, encouraging our team to define multiple new drilling locations going forward. Next one is expected to spot in June. The base business continues generating solid financial results, with revenues topping about $182 million and an Adjusted EBITDA of almost $115 million, a 63% EBITDA margin. Cost and capital efficiencies were high at the quarter once again, and despite inflationary pressures, we were able to reduce our cost, our structural cost, G&A and G&G by 6% compared to the Q1 last year.
Every dollar invested generated $2.50 in Adjusted EBITDA, which show both the efficiency of our capital investments and the profitability of our assets. Over the past 12 months, we have generated a 62% return on capital employed. Bottom line, in the quarter, we generated $26 million of net profits or $0.45 per share during this quarter. Following our debt reduction of $275 million during the last 2 years, our interest payments in the quarter were down by 30% to $13.5 million. We ended the quarter with $145 million of cash in hand and a net leverage ratio of just 0.7 times. We continue to deliver on our increased program to return more value to shareholders.
Share buybacks increased by 142% to $ 7.5 million , cash dividends increased by 55% to $7.5 million , approximately a 5% dividend yield. On April 26, GeoPark published its 2022 SPEED ESG Report , from which I would highlight our 34% carbon intensity reduction, which is a big step towards meeting our near and mid-term goals, as well as the positive impact that we were able to have on 240,000 people that benefited from the company's social and environmental programs in 2022. Looking forward, we're executing the multi-year drilling program in our core and surrounding blocks in the Llanos Basin. For the remainder of 2023, we're targeting the drilling of six to eight exploration wells, including exploration prospects in the Llanos 123, 124 and CPO-5 blocks.
In addition to continue developing our core asset base. We look forward to reporting results on these activities in the upcoming quarters. Thank you, and we will be happy to answer your questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to withdraw your question, it is star followed by two. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. Our first question comes from the line of Stephane Foucaud of Auctus Advisors. Your line is now open. Please go ahead.
Hi, guys. Thank you for taking my questions. I've got a few. The first one is around CPO-5 is the restart of the two wells is now being pushed back to July. I was wondering any particular context. My biggest, obviously, the question being my question is, there is not any stronger stance being taken by the government and whether you expect that the July is, there could be some further delays compared to the new date of July. That's my first question. The second one is around the CapEx reduction. I was wondering what activities have been taken out from the program. If you could comment on that. Is that exploration? Is that development, otherwise?
Lastly, it's an accounting question. It's around the royalty and the economical right, I think it's called economical right, in Q1. I see that million dollars, the value has dropped a lot compared to Q1 2022. Of course, our price is a bit lower, it doesn't seem to justify such a big drop. I was wondering what was behind the drop and whether there would be a catch-up at some point or not. Thank you.
Hi, Stephane. Good morning, and thank you for your questions. I'll address the question on CPO-5. Obviously, this is a very important element of the business for us. It's one of the most important blocks for GeoPark. The main reason for the delays is typical delays in executing the operations or the constructions that were needed. Effectively, the reason why those two wells are shut in is because the ANH has requested the operator after a long time of being producing under temporary facilities, temporary testing facilities, to build definitive facilities with which require some civil works and facilities construction. When the operator gave us the May deadline to put those two wells back online, the actual work progress was barely 0. It hadn't been started.
This is when we gave the information before in March. Today, the advance in the works is up in about 60-65%. Martin Terrado was there just a couple of weeks ago overseeing the works and making sure that everything was advancing. The works are being completed. Today, the estimation is to be end of June or July by the operator. That is being said to us with a 65% advance in the operations or in the facility. The degree of confidence we have on this new date is higher than the one we would have had on the May date we gave before. That's the reason. There's no new government requirements or any unreasonable request or anything like that that is working here.
It's really just the typical that sometimes it happens, there's delays when executing some of these civil works in the facilities. That's all. We hope we can meet that date in July. We are working and assisting the operator as much as we can. I took two trips to New Delhi this year already. We spent time with the management team of ONGC, as we always do. As I said, Martin visited the operation and is in constant daily conversations with the ONGC crew to make sure that all these activities are completed as soon as possible. Obviously, as I said at the beginning, this is a major production for our company. It is also part of the future on our upside.
We dedicate as much time and effort as we possibly can. I will let Vero to answer the other two points that you mentioned, Stephan.
Thank you, Andres. Good morning, Stephane, thank you for your question. As you mentioned, we have reduced our CapEx guidance for 2023 in $20 million, shifting it to $180 million-$200 million total from $200 million-$220 million before.
Is the product of, you know, constant looking for cost efficiencies and streamlining of our projects. In particular, there's a combination here of those, of those two factors, cost efficiencies and adjustment to projects. About half comes from cost savings in the execution of seismic that will be happening in the blocks Llanos 86 and Llanos 104 that are to the east of Llanos 34. The result from, you know, cost savings in the contracting process of these activities. About 25% also comes from savings in the drilling and completion input to Majó and in some infrastructure projects to be carried out in Llanos 34. The remaining 25% comes from an adjustment to the drilling schedule that is getting pushed out mainly in Ecuador and to a lesser extent in CPO-5.
For Ecuador, particularly, our original guidance included 2 to 4 wells in the H1 of the year, and our current guidance is including 1 to 2 wells in the H2. Moving on to your question on royalties. As uncertain mentioned, the royalties are lower in the Q1, and it has the impact of prices that you mentioned. At lower prices, you get a lower royalty component. Also, from the shifting of some of the royalties that are paid in cash to being paid in kind. This second impact net doesn't have an EBITDA adjustment to it, right?
What you will see as royalties get shifted from cash to in-kind is that the revenue line, the top line will drop, but the production and operation cost, where the royalties are included, will drop for a similar amount. Going forward, you know, the definition of how royalties get paid, you know, in cash or in kind, is a definition that is made jointly with the regulator. We would expect to still have more royalties shifted to in-kind during the year. You could see a continuation of this in our numbers going forward.
This is great and very clear. Thank you very much for taking my questions.
Thank you, Stephane.
Thank you. Our next question comes from the line of Alejandro Demichelis of Nau Securities. Your line is now open. Please go ahead.
Yes, good morning, guys. Thank you very much for taking my question. Just to follow up on the CPO-5 situation, Andres. Just to be clear, you don't have people seconded into the ONGC team. It's just Martin and his team kind of overseeing things and going to the field. Is that the situation?
Yes. We... I mean, we do have people seconded in the operations, and that's how we maintain the flow of communications with the field operations on a daily basis. On top of that, we have Martin and his team and our asset managers dedicated to CPO-5 that work, all the time and continuously supporting and providing any help, that may be required by the operator. Actively, we cannot execute some of these activities ourselves. There's an operator that is responsible for these works.
Okay. Just to be clear, the work that was supposed to take 2 months is taking, like, 6 months now, yeah?
That's absolutely right.
Okay. That's clear. Then the second question is more on the exploration front. When we look at your exploration charges over the past kind of nine months, it has been almost $40 million. Trying to understand the plan going forward, are you changing the approach? Are you having some lessons learned from those kind of, let's say, less successful wells that we have seen over the past few months?
Hello, Alejandro. Good morning. Zubi here. Just to give more context regarding your question. We have in our exploration plan to drill between 13 to 15 wells this year. In this first part of this year, finishing drilling 7 wells, 4 unsuccessful and 3 wells with positive results. One is the Guaco Sur in Llanos 34 that we already announced and commented in the last call. The well is on production. The other 2 wells are under evaluation and testing in the Llanos 87 block. They are the Tololo that is testing in the middle formation with more than 200 barrels of oil per day without water. The other well is the Zorzal 1 that we are developing the workover plan to be able to test the light oil that showed in the initial test.
In both wells, working in work plans and volumes for a possible future, development plans. For the rest of the year, we have at least 6-8 more wells, exploration wells that we are going to drill. one to two wells in Llanos 124, 2 wells in Llanos 123. Both blocks are, to put you in geographical context, are located to the west and neighbor of Llanos 34 block. In CPO-5, we're gonna drill one to two wells. One of those you know that will be the first well in the block targeting the continuation of Tigana-Jacana geological trend. We also wanna drill one to two wells in Llanos 34, and we also, we have another evaluation, one well in Ecuador in the Perico block.
Alejandro, we are optimistic about our plan, and we, I'm sure that we give you news in the next operational update.
To complement what Zubi is saying, Alejandro, to your point, of course, every well that we drill provides new information that is factored into our model to recalibrate the new prospectivity of the area. There is also new 3D seismic that comes in almost every three or five months because we are registering seismic in many places. All this new information is factored into the model to recalibrate and remap new prospectivity areas or remap again existing prospectivity areas where we had prospects before. Yes, the campaign on the H2 of the year does factor in the results of the H1 of the year.
That's great. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Oriana Covault of Balanz Capital. Your line is now open. Please go ahead.
Hi. Thanks for taking my question. This is Oriana Covault with Balanz. I had a couple of questions. If we may go one by one, that would be great. First, it has to do with the persistently wider differentials for Colombian crude, despite expectations for a compression. I noticed that they started compressing in late March, April. I'd like to understand better what is driving this and where do you see differentials heading? Are we under, like, a new normal, quote-unquote, situation? Just to get a sense from you guys on what are you observing.
Thank you, Oriana. Good morning. As you well mentioned, the Vasconia depression has been volatile and has been wider, especially during the Q1. It's now trading about $6 below Brent, averaging seven and a half year-to-date, versus five and a half for the full year of 2022. During the quarter, we even saw lows of $9. Your point is absolutely right. We've seen volatile and wide differentials. The drivers behind this are a few, but I would highlight one, increased crude out of Venezuela, coming to compete with our Vasconia grade, specifically, and the sustained, you know, affluence of Russian barrels into the market at discounted prices.
Additionally, we've seen, you know, increased flows of Canadian crudes into the US Gulf Coast market, which also affected the competitiveness of Vasconia. If you look forward, and we're already seeing it in the compression thus far of the differentials, a key factor going forward is the impact of the Chinese reopening in the demand for our crudes. We expect that to continue easing the differentials as the Chinese demand picks up, and the appetite for our crude increases. We would expect a recovery in the differentials for the remainder of the year, closer to the long-term historical averages, about $4-$5 versus Brent.
Perfect. That's very clear. Maybe just moving on to a process of a relinquishing of ex-exploration licenses in Putumayo area. I believe that headlines came out two days ago. If you can comment on this process, and do you have, like, an estimate of impairment loss that you book in connection with this? Any rationale behind this as well? Thank you.
Hi. Good morning, Oriana. Andres here. Yes. Thank you. Not sure why these headlines are coming out right now, just to be clear, when we acquired Amerisur Resources, end of 2019, early 2020, we picked up about 12 blocks in the Putumayo Basin. From these blocks, we started, between 2020 and 2021, we started some different processes for relinquishment of some of these areas, because they are in either less prospective areas or more difficult access areas or more sensitive environmental areas, so which were in places where we have no intention to real intentions to go. We've started the relinquishment of all these blocks a long time ago, and some of them have been completed.
I think out of the 6 that we were relinquishing, 2 of them have already been completed, and there's 4 more to be completed. There's no impairment associated to those because we have not allocated any capital to any of these blocks in the past. It's just following the normal due course of any portfolio management of the company. That's all that it is.
Perfect. That's great. That would be all from my end. Thank you.
Okay. Thanks very much, Oriana.
Thank you. Our next question comes from the line of Roman Rossi of Canaccord. Your line is now open. Please go ahead.
Good morning, and thanks for taking my question, guys. I have a follow-up on the royalties. You mentioned that you are changing the amount of royalties you pay in kind. Just wanted to have more clarity around that. Is that affecting the tax rate you're paying with the new tax reform?
Thank you, Roman. Good morning. As I mentioned, yes, we're shifting those royalties in conjunction. It's a process that we do in coordination with ANH, with the operator. As you well mentioned, right, as the tax reform has different treatment for royalties paid in cash and royalties paid in kind in terms of the deductibility, moving royalties to being paid in kind would have a positive impact on our income tax numbers.
Awesome. Thanks. I have another one regarding the issues you are seeing in Chile. You are only considering ENAP as the possible offtaker or are you considering others? Do you have any clarity on when are you signing a new agreement?
In regards to Chile, in the Q1, we've had commercial headwinds in the operation. We've been in negotiations with ENAP, our offtaker. It's led to the shutting of crude production in our asset. About 400 barrels a day remain shut in, and the asset is currently producing gas and condensate. We continue to work in different alternatives, commercial alternatives for the assets, not only circumscribed to ENAP, you know, and we will continue to work on those and report on them as they come forward.
In terms of expectations, you know, it is uncertain when we will be able to renew our contract or finalize other commercial alternatives, that's why we're taking the approach of including this production as being shut in in our guidance.
Okay. Thank you very much for the answers.
Thank you. Our next question comes from the line of Philip Skolnick of Eight Capital. Your line is now open. Please go ahead.
Yeah. Thanks. Good morning. Just wanna follow up just on the Ecuador deferral. Was there anything specific to cause that?
Good morning, Phil, and thank you for the question. This is Martin. Specifics are basically out of the comments from Vero and Subi in a sense that from a exploration perspective, we had a total of exploration and development, 3-4 wells for the year in the H1, and now we're moving to one to two wells in the H2 . This is based also on our CapEx ad-adjustment. As you know, we had an 8-well commitment in those two blocks. We have already drilled 5 wells. We're looking at the performance of the wells, you know, water cut, decline rates.
We also finished the seismic, so we decided to move further activity the H2 of the year so that we get more information from the subsurface, and we also align it with our CapEx for the rest of the year.
Okay. I mean, were there any kind of surprises then, or is it just more just you just wanna look at the data and, you know, progress based on that?
Yes. No, no big surprises. It's basically looking at performance and continue evaluating how the wells behave.
Okay, thanks. That's it for me.
Thank you, Phil.
Thank you. Our next question is a text question, and it's from the line of Andrew De Luca of T. Rowe Price, and it says, "Horizontal drilling. Can you please let us know how many additional horizontal wells do you plan to drill? What is the CapEx associated with the horizontal well? Lifting costs increased in Q1. Can you please specify what drove the increase and where you see this in 2023?
Thank you, Andrew. I will take the horizontal well question and let Veronica then go over the lifting cost. Absolutely, we're really happy and excited about the first horizontal well that was drilled in Llanos 34. This well is targeting to the Mirador formation. It has around 1,500 feet in the horizontal section, and it's performing according to plan and slightly above it. Right now, the well is producing 3,000 barrels of oil per day with no water and a very low drawdown. Mirador is a formation with a very active aquifer, and this was one of the opportunities that we saw to optimize the recovery factor of that formation. The cost of that well was around $10 million within budget and within time, as Andres mentioned.
Of course, at after well number one, we learned from it, we're looking forward to drilling the wells cheaper starting on well number two and so forth. We are expecting to drill one minimum to three wells in the remaining of the year in Llanos 34. Also, like Andres mentioned, we will spud well number two in the month of June. From a cost perspective, again, we expect to be obviously below the $10 million for the next wells.
Thank you, Martin. Moving on, Andrew, to your question in terms of OpEx. As always, our team works very diligently in our cost management, working to keep our costs tight, as tight as possible. This is reflected on the fact that we keep, you know, costs per BOE flat at $8 per BOE consolidated year-on-year in 2022. In the Q1 of 2023, we've seen higher OpEx, about $10.1 per BOE on a consolidated basis. This came from an increase in Colombia, which registered a total of $9.6 per BOE, and also in Ecuador, while it was in line for other assets. The main factors pushing our higher OpEx in Colombia were transitory in nature.
We accelerated well service activity that was already planned, that was executed in the quarter. We also faced higher electricity costs, especially in Llanos 34, those were a function of weather factors. Being these factors transitory, we expect our operating costs to drop from this level of the Q1, expecting $8.50-$9.50 on a consolidated basis for 2023, with Colombia about $7.50-$8.00.
Wonderful. Thank you. As there are no additional questions waiting at this time, I will hand the conference back over to Mr. Andrés Ocampo for closing remarks.
Thank you, everybody, for your interest in and support of GeoPark, and we're always available to answer any questions you may have. We encourage you to please visit us and our operations and call us any time for more information. Thank you and have a good day.
Ladies and gentlemen, this concludes the GeoPark Q1 2023 Results Conference Call. Have a great day ahead. You may now disconnect.