Q2 2020 GeoPark Ltd Earnings Call
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Good morning, and welcome to the Geopark Limited conference call. Following the results announcement for the second quarter ended June Thirtyth Twentytwenty.
After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question at this time press star one 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. It is available at the Investor support section on the company's corporate website at Www Dot G.O. dash part Dot com.
A replay of today's call may be accessed through this webcast in the investor support section of the Geopark corporate website.
Before we continue please note that certain statements contained and 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's 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 and the company's FCC 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 in your prepared in accordance with the I F. R. S and our stated in U.S. dollars unless otherwise noted.
Reserves figures correspond to PR and the standards.
On the call today from Geopark is James F. Park, Chief Executive Officer, Andreas Sucampo, Chief Financial Officer.
Martin Toronto Director of operations and States. These final shareholder value director and is now I'll turn the call over to Mr. James Park. Mr Park, you made again.
Thank you and welcome everyone.
Joining here this morning.
Our executive team United is over but still physically separated and calling in for a lot of respective locations in Colombia, Argentina and Texas.
Again, we were extremely good in water expressing our sheila thanks generous, but for the Geopark women and men who are working their night pushing those through this downturn and continuously making our company perform.
Certainly our shareholders and positioning us for the new world on the other side.
Then well.
Second quarter, well see ugliest, good marino's three month period fire the experience than 40 plus years in this business.
We got a whole lot mid July though.
Our global pandemic.
Production War.
A lot they'll go a little bit Connolly.
Historically Atlanta collapse.
And even negative oil prices.
Before opening up for questions.
And then in order to give some flavor to the dynamics than operational and financial efforts during the quarter.
Let's please review board key areas of our business.
First.
Looking at our production and drilling or sponsored actions.
With speed and agility, all more drilling and workable.
The standard at the beginning of the corridor involving a shutdown of eight rigs.
Then.
Always considering health and safety reservoir mechanical and cost factors.
We show them six people I'm honored to 7500 barrels per day of production.
When prices were at their lowest.
As price itself to greatly strengthened.
We reopened seven is 80% of these wells.
Was raised goes back up to our current production of over 40000 barrels per day.
On a quarterly average of 37000 barrels per day.
We also resumed drilling with a real waters program of six to eight wells in Minneapolis, 34 blocks, where Geopark has operating and one of the two wells and let's see pretty old far block. We're always GE is operated.
And we put all work over and well maintenance rigs back into operation.
Second.
Looking at our cost and investment response and actions.
We booked a break so on capital expenditures with an 80% pellet and began driving down each and every cost.
Production operating cost down 55%.
Operating cost per barrel down 26% of $6 per barrel.
And she's a very on June three columns down 19%.
Across our platform total cost investments savings exceeded $290 million.
And now with strengthening prices.
We were able to revise our full year 2020 budget upward to $65 million to $75 million supporting a program targeting production the 40 to 42000 barrels per day.
On an operating netback of $230 million to $260 million.
The breadth of 35 $40 per barrel.
Third.
Looking at our cash preservation safety meth and risk management response and actions.
Karen Preservation was a key risk management principal and after beginning that corridor with cash of $166 million.
We have the same level today.
As an additional safety net we secured a 75 million dollar oil prepayment facility with $50 million permitted and no amounts drawn and we have an additional $140 million uncommitted credit lives.
We have a long term financial debt maturity profile with no principal payments until September 2024.
And now simply and Fitch recently reaffirmed geoparks long term corporate credit rating at B plus.
Our hedging program wasn't effective tool in protecting our base oil price.
And providers, a 14 million dollar cage cash gain in the first half of 2020.
Forward.
Looking at our speed E.S.G. response and actions.
Speeders Geopark successful integrated value system, which includes E.S.G. components, as well as health and safety and play well be.
Confirming what pandemic, we quickly put protocols preventative measures and crisis response plans in place across our six country platform and reduced field teams do a minimum with backup perusing contingencies employed the capable award.
Working safely and production flowing.
Geopark was the first im pretty confident in Colombia to obtain bureau, very tough certification on bio security protocols to Medicaid and manage the impact of cobot 19, and our operations.
In keeping with our continuous work with our neighbors in communities, we stepped up our efforts during the pandemic to provide safety medical and food supplies, particularly for the most vulnerable.
Our efforts that impacted over 11 other families or 6000 people supported local health officials and also coordinated with federal officials.
Yeah.
Looking at our structural efforts to grade up better and stronger business.
Taking advantage of the turbulence, we began working to streamline the all of our business to improve the overall cost structure.
And benefit from available synergies and new innovative technology.
This is involved a review of all departments in capabilities.
And our reorganization of our asset management approach.
We also retired from the non producing Malone a block in Peru due to an extended for summer sure.
Our teams are now we're working on the 2021 work program and the upcoming capital allocation process and are developing a rich inventory of new projects that provide attractive returns at a 35 to $40 oil price environment.
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We also were pleased to welcome Sylvia Escobar and slowness Varma as new independent Board members.
Two respected and proven executives, who will help drive fewer park to our exciting energy future.
So a lot of its been accomplished.
And we remain prepared for however, long the full duration of the store might be.
Our company was born in the crisis in 2000 is too and as show once again, we can keep focused and navigate through these upheavals.
And as much as these times heard Geopark has always adapted become a better and stronger on the other side.
As we are on the move to do so again.
Thank you and we will be pleased to answer any questions you may have.
And please be patient it was we try to coordinate our question answering with our team low card catered across two continents today.
Thank you at this time I would like to remind everyone. If he would like to ask a question. Please press Star then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the Q press the pound key once again to ask your question. Please press star one.
Your first question comes from the line that Alejandro Demichelis, if any security.
Right right right.
Yes, Hello more in general.
Couple of questions. If I make you feel cod unimpressive running in terms of reducing the cost day.
Very well on that.
Hi, I'm wondering ask you restart production, we will all again back some of the more extensive field.
So my feel that's got a cool.
Savings are going to see kind of coming back into eating into them.
And then your second question if at some of your P.A. seem to be having trouble on because the module area. It maybe you can think of common how you see the yodle blow a walk away scope of taking some kinda locates over there.
Great.
Thank you I think on middle and good morning.
On the Gulf type a US you said we've.
We have improved significantly out of calls bases across all of the fields.
I would say broadly.
With the reduction that you see from the first quarter two the second quarter.
It is as you said, depending barco feed or on the Opex side, mostly depends a little would be on how much of the production. These he's pudong on on stream.
So part of the savings that you see the into second quarter are going to be reversed.
When or how being reversed.
When the production has been brought back so I would say a protein couple of that is is there to stay on top of the savings is there to stay and on top of it may or may come back.
Before you pricing TPS, you're more in prices.
Remaining remaining at the levels that we are experiencing today, which is which is much higher than what it was seen in the second quarter nothing that I look I know, so odd or some of the air force that have been done all the renegotiations on and also several of the things that have been including those are the negotiations.
Lumpy.
Yeah. Thank you, Andrew and Hello to Andrew If you did last month, a we negotiated around 300 contract.
And the we bought savings evil service contracts and material purchases.
In the D.A. about 10%.
Saving on top of the savings that we have achieved back in 2015. So is that that's basically where we are today.
We expect to have for this year with those discounts about $10 million on contracts on material savings.
[noise] on several of those are going first dot com, our long term lending how being put in place years ago. So in 2015 or 16, so we're very hot embedded in them, 30% discount compared to two normalize contracts.
And then you have several fourth quarter worth about operations seen our operations team being put to Marshall.
BP certainly surface Weiss of different.
Area compared to the Shadow banking, we had expected that our production equal to module or represent less than 10% of the overall company production.
In any case since we started with our operations there, we have north face any disruptions or or yeah issues weve, a with or without neighbors are we are.
Currently a a restart of Colby and we obviously, increasing safety safety and health measures across all of our operations.
Obviously or some of these are these community.
Do have increment that is worries, so casey's or contamination coming through though coming and going away.
So we have seen increasing activity or or increasingly Monday, showing a with respect of kabi operators coming in and out so rapidly that it's a risk a that exceeds continuously a we haven't face any any interruptions oh, sorry, sorry.
That's the it Oh, we do see some of that stuck on phone racing India.
But in any case I mentioned this these does not represent a significant portion of our production and obviously our number one priority. In these cases is the health of our neighbors on the health of Florida operations Cool.
Okay. That's very clear. Thank you very much a I'm not going out of it.
Thank you.
Our next question comes from the lineups cabin Wiley of Scotiabank.
Hi, guys just a one maybe two quick questions for me if I can so it looks like you're taking advantage of some of the Colombian governments tax deferral programs that are available.
There's no cash taxes paid during the quarter, which is typically when you guys do your big installment payment for Colombia. So just a quick question on that is if I do the math it looks like there's kind of remaining about 50 to 55 million of cash tax charges.
For the balance of Twentytwenty and wondering if you can kinda give me a sense of what quarters those will be lingered into work if there's a deferral core program in place, we actually could see that pushed out to Q1 of 2021.
Second question is just around M&A in how you're thinking about the longer term kinda portfolio would be a walk in Peru kind of retired now that was a big chunk of future growth and is that you know kind of are you back on the on the a war pets so to speak to you to find new.
We need to find new acreage or some more significant project given that you do have quite a bit of liquidity headroom currently and those are the two questions. Thanks.
Hey go in a good morning.
Thank you for your questions well the first one with respect to cash taxes.
Oh really you know if they may change or any other tomato me no budget wasn't completely different number but the last a data point that we gave was included in our corporate presentation with something around.
Okay $60 million cash taxes for 2020.
From a wage 17 million had already been paid into first quarter. This year, so remaining cash taxes, let's say more or less $40 million.
As you pointed out it was not fading day in the second quarter.
So those remaining $40 million are composed of spoiled.
Between $20 million to $25 million are they feared or to 2021.
As part of the agreement with the yen or refinancing a those payments in installment.
Beginning in August and ending or thing being you know what's next year.
Got it gives you more or less.
$20 million to $25 million payables next year, I'm, just roughly $15 million solution as cash taxes to be paid.
Our aim to policy uncertainty.
However at the same time, we have collected or would have collected already but you'll see that cash in the balance sheet because it was collected in July.
Around $15 million or former taxes that were paid in 2019 that did yam have accelerated are typically these applications for reimbursement or take a couple of years under the on cost accelerated the good procedures to collect foster so basically we collected.
$15 million are already in July, but we know said the payments that he stated due in 2000 or 20, so the net effect Showtime series zero in 2000 Kenny.
And then remaining 24 million in the first couple for most of it into first half of 2021.
There are reaching out Oh gosh, the tax benefits that may occur during 2010 people become a four to 5 million local publishing on income tax reimbursement from prior years that Aristide following their due course that may make later on this year best at least.
$60 million. So the 80 taxes that we may call. It goes so from my own Indian behavior.
So, but those two are the contingent let's say, let's say, but the ones that are from or $50 million I would've said the payment for this year and then they 24 million little payables or first half next year.
Sorry, I was launched I hope that was clear so we thought it was clear or more onto the next one about the portfolio.
Okay very good thank you.
I'm sorry.
So as you pointed out a we we decided to exit our our project in Peru.
And it was part of our our future significant growth.
But something that occurred during 2019.
Has been what we call those are pretty significant silent and significant non crop.
Particularly in Colombia, and most specifically indigenous basin.
The.
Basically we moved from or we expanded.
And the reason that association that we had if you play shows up at the beginning of 2019.
We had 80000 acres.
In the Central General spacing, which is namely Jana 34.
And then we pretty much ending the year or started to both an uncertainty with roughly 1.5 million acres of exploration research and development opportunity.
Problem some of that E on trend.
Oh power, our general study for Bill.
So.
We.
We agree with that Hulu dot impact, our long term or I mean that the exiting up through the impact our long term future growth. He was on the addition of outsize Optionality for Oh.
But we believe the lobby club, but we were able to achieve.
During 2019 has been very significant.
Some of those growth.
At home or some of the most attractive onshore exploration prospects that our team has come up in the region over the last few years.
We are looking forward to continue our exploration activity seen in those area.
We expect pretty significant future gross or growth from them.
And then obviously, we'll continue looking for additional opportunities throughout the remaining the remaining area in our portfolio, but I would say that probably.
Well only on particularly the general facing is one of the most are imminent and most attractive exploration opportunities.
I would also a lot. The fact that we not only do we added significant acreage position in the downturn, but also why does it put the merger basing which is part of the mall basing the millennium Orient. They put the motivation there has been targeted by our team for many years.
We're doing it in the right way with production.
Development opportunities, but also significant exploration upside in partnership with a with a world class partner like Oxy.
We also have pretty significant pardon hosting a recruiting in general.
Such as obviously on Wednesday seen Seafield five but also takeover DRONCO quoted in the other or any other exploration explosion project.
Well, there's really very exciting acreage and a and we look forward to hollow next field trip in Colombia, where our Geologies can go start sharing some of the ideas that they are seeing a because he is really really really excited.
Your next question comes from the lineup Joanna Castro Lucky town.
Hi, Good morning, everybody my question need resigning not unusual.
And I'm, just do I understand I need event at the rationale on Oh name in <unk>.
The operation how you guys are opening up the operation I mean, I need understood and then come that decision.
In other than they were not any Joe had been active me no and production costs. So I think I.
Yes checking in January nothing to do what they do them 4000 and viral and.
And I don't know you, maybe because I know, but different opinions break into seven how well and.
These done between that money is not economically efficient and to put them into production, but I understood that he wants I know breakeven kind of production I guess another thing that deal size, but that's something that could have been cap. So it would be great. If you can act explain I need if they've been ideas of how you are opening up and those those predictions I think.
Do you think becoming money.
Thank you. Thank you John and good morning.
It's gotten easily to feel that has the potential for election of roughly 3700 to 4000 Boes a day.
It has been most update on production throughout the whole year. There were a few they sold disruption because of a problem in that filled the pipeline in Ecuador, but really it feels like it has been operating or most of the Guy. That's you said, it's a fairly low cost field is not us Noah.
CP or fiber general coding for but Oh, no big so roughly $13 per borrowed on commercial vehicles that go from four or $5 per bars. So yeah with the exception of certain periods of time, where we we open or close some.
Well most of the timing of if he'll be producing something between 3002 to 3700 Boes a day, which is the potential so that how we oh, we have been a money I think that field this far and with no significant issues.
Maturity that addresses your your point.
Okay, well, what I was thinking how how isn't going to work ahead, depending on right.
Our next well I used to offend on cost reduction things on facility.
So he can you say that again.
Oh, sorry, yes, they want to make standing how does that thinking about this reduction I know opinion apples name brand outside I think we see he's working like it depends on.
No. So Oh boy brighter for you to start pushing we've got any dragon or how do we look at these Nick.
I piece breast prices go up and enjoy your take on Oneq on these producing them generating cash flow batteries are not even at current status of the field, where he is not part of the of the shopping production.
We mentioned before I finish it has been continue to produce throughout the cycle.
We didn't show up in a few when seems up any feel for a period of time of the bottom.
When Brent touched 20.
Yeah, well lower Plenti, Oh for a few weeks, but no not more than that it was brought buck a cooling capacity a pretty pop so the expectation anybody we continue to.
Two previews within the same levels, but it has the potential for you.
Let me, let me talk anything Crazy carrier.
Your next question comes from the lineup Robin He worked at Stifel.
Hello, and thanks for taking my questions two for me.
So I think Jim in his prepared remarks at the current production was around 40000 barrels a day I'm, just wondering where we should expect that to get over the rest of.
During the year and should we be looking for that to increase towards the 45000 barrels a day level, but if you were able to achieving Q1.
Would you really expect that be.
Flat I think basic compatible with your guidance for the full year.
And second question is on.
Cpis wise and great to see some from wells. In addition to Matt I was just wondering if you could talk about the current status. Yeah are you preparing to rig up.
Say they'll be about the targets and the risk profile. You know these exploration wells are these appraisal wells oh or some of the discovery, So where do you made in that book that would be that'd be great. Thank you.
Right, Thanks, very much Robin and good morning.
With respect to your question about collection out to the the expectation for the remaining of the yearly sees more or less around 40 to 42000 barrels a day, that's the range more or less than we would expect.
That is pretty much what you should expect assuming that we are only estimating one rig reading young 34, or so without a level of activity. The expectation is more or less to two to be within the levels, we're saying in the release, which which is something more or less which.
<unk> 40 to 42000 Boes a day.
And then with respect to the specific activity under wells that were targeting because really.
There we are already up I'm drilling a actually we have two drilling we've right now because these are the rigs that were operating when we shut them down and they just stay there. So one of the rigs is finishing drilling on will leave you also report and we will keep the other rig.
For the time.
Until the end of a year or at least until the end of the year on hopefully was just stay there drilling bucked about well on the side of that way, we'd have to completion rates a workover rigs one of them to complete the whether that would drill the other one or two lead.
To the Workovers on deep Bach wells of Naval flying from time to buy so they are already.
They are ready I know the way they really that's the answer.
Most of the wells that were targeting or do you go to my wells mainly in did you guys are Hawkeye area on TV sorry. Yeah. These are you gonna have gone up and D. Wells, most most of them really and I don't know Mckinney, if I missed anything please leave or whatever you think.
No I think you cover most of it on based on listeners to follow up question.
Okay, Thanks space and.
Preserving.
And I guess my question was also relating to see P.I. five as well and say, Okay. Just wells initiative.
Yeah, I can take a if you peel five robin so when they plan is to drill one appraisal well, which would be equal equal I do they two wells her boozy not blog piece. The one that has more than 200 on 50 feet of net pay you'd have to us it's producing around.
5000 barrels of oil per day.
On wood is zero water cut so way there will be not finding what they're always going to we're very exciting data that would be aware that he's going to help us understand on confirmed that it's much bigger than chefs one well.
Yeah, so that would be the first well to be drilled by only TC followed by ideally would cheese and exploration well.
Or getting the same formation on the same play from muddy Bossa on Dina.
And on I mean, because sorry, so that would be that they say cornwell.
I don't make them.
That answers your question Bobby perfect No that's great that's great. Thanks.
Okay. Thanks, Thanks on those cuts it for me I figured Robyn.
Thank you that was my final question for today I will now return the call to Mr. James Park for 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 us at our operations in each country.
Also our shareholder value team has accelerated their interactions and there's busier than ever with Webinars Videoconferences indirect calls.
And is available around the clock as is all of our management team to answer any questions or to listen to your comments.
Thank you and please stay healthy even strong.
Thank you for participating in the Geopark second quarter 2020 results release conference call and webcast. You may now disconnect your lines and have a wonderful day.
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