Earnings Call: Q3 2018

Nov 7, 2018

Earnings release

Good morning, and welcome to the GeoPark Limited Conference Call following the results announcement for the Q3 ended September 30, 2018. After the speakers' remarks, there will be a question and answer session. Farber Beddon and Company in New York at +1212687808080 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 at www.geo park.com. A replay of today's call may be accessed through this website in 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 risks and protections before the call has its protections afforded to the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive development 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. Dollars unless otherwise noted. Reserve figures correspond to the RMS standards. On the call today from GeoPark is Chief Executive Officer, Ms. Beth Park Chief Financial Officer, Josefa Campos Chief Operating Officer, Augusto Villalaga and Shareholder Value Director, Stacy Spano. And now, I'll turn the call over to Mr. James Park. Mr. Park, you may begin. Thank you, and welcome, everyone. We're joining you this morning with our executive team from Buenos Aires, Argentina. Let's please start off mentioning some of our high level record operational and financial results for the Q3, which help illustrate our tremendous overall forward momentum. Then move to highlight some of our active work programs in each country, which are further pushing performance and uncovering more value for the coming periods, And then touch on our newly approved work and investment program for 2019, which will drive GeoPark's growth next year and thereafter. 1, 3rd quarter results. Continuing our quarter after quarter, year after year oil and gas production growth, we are up 31% this quarter to over 37,200 barrels per day with oil production up 35% and gas production up 17%. Our active drilling program with 11 wells drilled this quarter out of 38 wells targeted for the year, continues finding more oil and gas fields and extending the boundaries of our known fields, giving us more reserves to support more production. Financially, our EBITDA more than doubled to approximately $100,000,000 for the quarter, which was about 3 times the invested capital this period, demonstrating our capital and operating efficiency. 3rd quarter bottom line net income hit $30,000,000 We have a cash cushion of over $150,000,000 and our leverage ratio dropped below 1 times. And most importantly, all of these accomplishments are being made in a safe, environmentally protective and neighborly way, helping to ensure our long term success. 2, country activity. In Colombia, post operated production exceeded 65,000 barrels per day and 10 new wells were drilled this quarter, developing known reserves and extending field limits further. Flowline construction to connect Liano 34 to the main pipeline system is underway and on schedule for a Q1 2019 completion. We also continued our portfolio consolidation by divesting of some non core higher operating cost projects for $20,000,000 In Peru, the environmental impact assessment for our Big Marona project was filed with the government after a year of work that involved over 150 people, mostly from the local community. Approval of this EIA will set in motion implementation and construction of the early production phase for the Setoochee Central light oilfield. In Argentina, the takeover of the new project in the New Penn Basin continued on schedule with a workover program initiated to improve water flooding effectiveness and reserve recovery and an upcoming well to test tight gas potential on our block. In Chile, a promising new gas field discovery, the Jauke-one exploration well opened up the southern side of the big Mickey geological feature for additional development opportunities. In Brazil, platform construction is underway for a new exploration well next quarter in the mature onshore reconquebo basin, and production continued from the prolific Manatee gas field. And in every country, GeoPark's oil finders and engineers are continuously working up new production, development, exploration and unconventional resource opportunities on our 6,000,000 acre land base to further expand our rich in house project inventory. 3, 2019 investment program. Our deep pool of attractive opportunity was evident as we work to build our 2019 work program. For the management team, we just finished up the best 2 months of the year when we have the chance to spend our time together, visiting our teams and field operations in each country and reviewing all the new ideas being generated by each business unit. This year, we were presented 135 different projects from our 5 different country units, which were then ranked on technical, economic and strategic criteria to allow us to 0 in on and select the best shareholder value adding projects for 2019. This GeoPark capital allocation methodology is a powerful tool, which has continuously improved and evolved overtime and which is the key to us successfully managing a multi country portfolio and business. For 2019, we just approved a $220,000,000 to $240,000,000 investment plan to be funded by our own cash flows with base production targeted decline by 15%. For another year, GeoPark will continue to be one of the most active independent drillers in Latin America with nearly 40 wells targeted for 2019, and which will test a variety of new opportunities from development of existing reserves through exploration of new fields and testing of some unconventional resource plays. Colombia and our Yale 34 block will continue to be our principal growth driver where to date we have only produced less than 20% of delineated reserves on this generous and low breakeven project. A sizable component of the 2019 budget will be directed to put the high potential Marona project into production with cash flow by early 2020 and set in motion the next pillar of growth for GeoPark. The Marona project includes the discovered Satouche Central Field with 2 oil wells that have tested a combined 7,600 barrels per day and which could be part of a potential 200,000,000 barrel field. The project is located in Northern Peru near the Ecuador border in a prolific petroleum system that has been explored and operated over the last 50 to 60 years and produced over 1,000,000,000 barrels of oil. Additional projects will be undertaken in Brazil, conventional oil Argentina, oil and tight gas Chile, gas and unconventional oil, demonstrating the variety and depth of hydrocarbon opportunities in GeoPark's portfolio and the technical capacities and strength of the GeoPark team across the region. At the end of 2018 with another year of performance growth, we believe GeoPark's relentless 16 year track record is proving us to be the leading Latin American explorer, operator and consolidator with the platform, team, cash flow and Thank you. And our team here will be pleased to answer any questions now. Thank you. Our first question comes from the line of Jenny Stenoz of Canaccord. Good morning and congratulations on the record quarter. I have three quick questions, please. First of all, with regards to your capital budget in Peru, what is the total CapEx to bring the 10,000 barrel over there production online? And please remind us, will you be carrying Central Peru during that stage? The second question is on Argentina. Could you please update us on the progress of your optimization project there? And when do you expect to see a meaningful impact on production and operating costs? And finally, a question about Brazil. You're generating significant amount of free cash flow. So why take out a loan in Brazil? Thank you. Hi, Jenny. Good morning and thank you for your questions. So I'll start with the first one. With respect to Peru, the estimated CapEx that we announced for 2019 is the bulk of what is needed to put the field on production. So it's nearly $100,000,000 Our estimated CapEx following that $100,000,000 for the following year, so for 2020 in Peru would be somewhere around $26,000,000 So it's not significant compared to what it is in 2019. So largely, we should expect cash flow and production coming from that field in 2020 to start repaying for that CapEx in 2019 and obviously fund all the CapEx that is required in 2020. So I would say most of all of what is being invested in 2019 is what is expected to put the field on production. We are covering Petro Peru for their stake, which is 25% throughout these investments in 2019. And a portion of those, of that carry is going to be reimbursed through their share of production starting in 2020 onwards. With respect to Argentina, we already started as you probably saw in the Q3, we already started a pooling campaign to repair some wells for the water flooding. That's why you see the OpEx in Argentina increased. That's around $8,000,000,000 per barrel OpEx that is associated to the to the pooling campaign. So the OpEx the actual OpEx operating without those pooling campaigns has already dropped this quarter around $5 per barrel. And we are estimating for next year our operating in Argentina to average around $20 to $22 per barrel. The bulk of the production growth is going to start coming towards the end of 2019 and 2020 in Argentina, mainly because some of these type of opportunities that we're testing, we're going to be testing it for some time until we define that the site and the delineation of that makes sense for us to construct the pipeline to put the whole play connected with the system. So that will take us throughout most of 2019. So the impact on production you will start seeing is end of 2019 and most of it in 2020. And then in Brazil, really, the loan was mainly to hedge the FX. Basically, we had, if you remember from our previous few quarters, we had an intercompany dollar denominated intercompany loan between Geopal Corporate and Brazilian subsidiary. Fluctuations in the foreign exchange in Brazil generated big swings in our non cash profits or losses. So basically, what we did is we replaced that intercompany with a local currency loan. So on a net debt basis, we are the same. It's just fixing the cash flows together with the currency of the currency of the cash flows with the currency of the debt. I'm showing no further questions at this time, sir. Do you have any additional or closing remarks? Well, thank you everybody for your interest in GeoPark and your continued support of our Company. We encourage you to please visit us at our operations in each country and call us at any time for more information. Thank you. Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.