Q4 2020 GeoPark Ltd Earnings Call
Good morning, and welcome to the Geo Park Limited conference call. Following the results announcement from the fourth quarter ended December 31st 2020.
After the Speakers' remarks, there will be a question and answer session.
If he would like to ask a question at that time. Please 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 Park Dot com.
A replay of today's call maybe accessed through this website passed in the Investor support section of the Geo Park corporate website.
Before we continue please note that certain statements contained on 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 F. I F. R. S and are stated in U S dollars unless otherwise noted.
Reserves figures correspond to P. R M S standards.
On the call today from Geo Park is James F Park, Chief Executive Officer.
Although still so the yoga chief operating officer.
Andres Ocampo, Chief Financial Officer, but Athene travel director of operations, and Stacy Steimel 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 joining you this morning, with our executive team in Bogota, Colombia, and <unk> Argentina.
Reported on our fourth quarter and full year 2020 financial results.
Present, an upgraded work and investment program for 2021.
And highlight our steps to continue returning more value to our shareholders.
As everyone is personally experienced.
2020 was a historically challenging year.
And we must first recognize and express gratitude for the superhuman efforts by the <unk> women and men that made it possible for us to prevail through the storms of 2020 and.
And successfully continue along our hard fought 18 year growth trajectory.
As we have done repeatedly.
Our history.
Geo Park has emerged from this crisis as a better and stronger company today.
Our bottom line illustrates our accomplishments.
We kept our teams safe and healthy.
We operated in the field without interruption for 365 days.
We grew oil and gas production for the 18th straight year to over 40000 barrels per day.
We found more oil and gas.
And now have to pay reserves.
175 million barrels with a net present value of $2 $5 billion.
We expanded our Columbia on the exploration resources to over 750 million barrels.
With increased acreage in the yen and Putumayo basin.
We beat down each and every cost and achieve savings of over $290 million.
We funded all of our work and obligations with our own cash flow.
We invested $75 million and recovered nearly three times this amount an EBITDA of $217 million.
We acquired a new company <unk> and fully integrated it into our company.
We completely restructured our asset portfolio and organization under a revised business model.
We strengthened our balance sheet and almost doubled our cash on hand to $200 million.
We have provided important aid and support during the pandemic to our neighboring communities.
We moved to reduce our carbon footprint and minimize social and environmental impacts.
And even with low oil prices of 40 to $45, we reinstated our shareholder value initiatives.
Share buybacks and cash dividends.
As always the underlying foundation for Geo parks performance as our in house integrated value system, we call speed.
This program was a founding element of our company and one of our proudest accomplishments on.
Always pushing us to be the employer of choice.
Order of choice and neighbor of choice.
Speed stands for our priorities of safety.
Prosperity, including governance.
Our employees.
The environment.
And our development of communities, where we operate.
We consider this ESG plus.
And we welcome the increased scrutiny from investors about an area, where we excel.
So 2021 is already well underway with seven rigs at work.
Seismic being run to identify new prospects on our high potential acreage.
And our team fully engaged in getting every molecule of hydrocarbons.
Safely cleanly and profitably out of the ground and to market.
With higher prices and increased cash generation, we are accelerating our profitable production growth.
We have expanded our work program to now invest.
$130 million to $150 million to drill 37 to 42 wells focused mainly on the continued development of our prolific <unk> 34 block.
And some high impact drilling on our surrounding blocks in the analyst basin, including the CPO five block.
We look forward to executing this exciting fully funded risk balance work program.
In developing our big growth opportunity in Colombia.
While maintaining a strong balance sheet.
And continuing to return tangible value to our shareholders.
Thank you.
And we would be pleased to answer any questions you may have.
As a reminder, ladies and gentlemen, if you wish to ask a question at this time simply press.
Star then the number one on your telephone keypad again that is star one.
If your question has been answered and you wish to remove yourself from the queue press the pound key.
Our first question comes from the line of Stefan So cool.
<unk> advisors.
Hi, guys. Thanks for taking my questions.
Judy too so the new.
Capex program activity program for 2021 is based I think on the 50% to 50 Fob that all about.
We are currently north of 65, and then all of a bundle.
The full price, which will remain on that level for the day.
On your bulk of the GAAP would you consider either accelerating again, the activity program or increase dividends share buyback more share buyback, we'll pay down debt.
Where you'll see what's out there would be great.
And the second annuities that they.
Putumayo low production I think is down on potash subdued minutes and I was wondering with the production guidance for 2021 was including anything for Putumayo.
Yes, how much thank you.
Hi, good.
Good morning, Thank you for your questions.
To your first question.
With respect to our new Capex guidance 50 to 55.
If oil prices remain at the levels, where they are today.
I think.
It's going to be a combination of you're on.
All of your items.
Always the first priority for our excess cash generation is to reinvest and accelerate the development and exploration plans in our existing asset portfolio.
And then following that we always do.
Through a combination of shareholder value return on balance sheet management. So I guess, it's more most likely going to be.
On a combination of all those three taking into consideration.
On the part that we have that and we want to.
Continue on all of.
Deleveraging plan.
We want to continue also expanding our share holder value initiatives.
But also reinvest to accelerate exploration on development on our existing assets if oil prices remain at the levels, where they are today, we would expect to two to generate significant significantly more free cash flow from from a process that will allow us to do all that.
And then on your second point.
<unk> production in two module.
Yes, the guidance that we gave factors scene.
These these preview.
Period of product from setting.
As of last night, we were in conversations with our team on the ground down there on.
The situation has been resolved.
On the production is actually starting to flow back again on <unk>.
Morning.
We would expect the production to be back to normal levels of around 2400 barrels per day over the next three to five days. So the situation is normalized on him.
Unfortunately, this wasn't on event to which we were net of part D. D. CS.
Simply a protest against the state.
We are basically expecting the needle, but luckily the good news is that the situation has been resolved on production is flowing back again on Yesterdays stock wasn't included in our guidance was Bob can email guidance on 2021.
Okay.
Wonderful thank you.
Thank you.
Our next question comes from the line of Ricardo presents day.
J P Morgan.
Hi, Thanks for taking my question Jim on their Stacy whole book. So a couple of questions on my side first one if we can.
Think about oil prices remaining where they are now we're just wondering if you could by any chance actually accelerates your hedging program and try to lock in those prices above.
Our guidance for the year and then the second question is on potential.
New projects for the year or areas, where you could be looking at maybe acquiring from blocks or where new auctions. If you could comment on that that'd be great. Thank you.
Sure. Thank you got it on the hedging question, Yes, I mean this is the time, where you wanted to accelerate those hedging strategy. Because this is the time we're in hedging.
Becomes a very level.
Better costs.
Today, we are around 70% hedged for the first half of the year around 50% hedged for the second half of the year on starting on the first quarter 2022.
Brian you had around 15% to 20% so.
We are actively adding more hedges probably more on the second half on the first on the second half of this year on the first half of next year on the levers that we are seeing today in the market.
More or less flow, so 50 with ceilings around 75, if we can capture a level like that for Brent we will definitely start adding more volume into amines.
And then with respect to the opportunities in new projects.
As you know.
Key component of our business.
We are in active participation in multiple different divestiture initiatives that are going on.
Mainly it's probably all of the countries in the region.
On a very significant.
Projects being offered for sale in Brazil today, both onshore and offshore are there are some attractive acreage being become a very level in Colombia as well.
In the zone of spacing, but also in the middle.
So on there are some some other opportunities and we as we said on we always say we are actively looking on participating in.
These all of these projects.
But also as we always say.
In 2019 would need these significant non crop.
Wound Journal 34, we're consolidating on doing anticipating all the works.
To try to accelerate our exploration campaign.
Within our organic portfolio. So if anything we have set the bar higher for new projects to come to the company.
And we are conservative patient buyers.
The opportunity comes.
We'll definitely definitely taken.
Okay very clear thank you.
Thank you.
Our next question comes from the line of Alejandro team with tenants on Securities.
Yes, good morning, gentlemen.
Few questions. If I may 1st one please could you could you indicate how you're seeing the.
Cost evolving now that youre accelerating activity levels.
How are we going to two to two <unk>.
We retain some of those.
Gains on that.
You executed last year or is part of that is kind of coming back to the first question second question on the production side of things. If we look back to say first quarter of 2020 before Colby you were producing 45 46000 barrels a day on average what we.
Take for you to go back to that level do we need more investment on the one that you're guiding towards now.
Probably a third question if I may is on the exploration program.
With the acceleration of the exploration how much of the.
The prospective resources that you indicated so hang on.
50 million barrels you think you can be accessing with the current exploration program.
Thank you Alejandro.
First question with respect to <unk>.
Cost basis.
There's a couple of elements that come to play.
You know of course, you got a cost base.
One is the fact that last year.
We reduced a lot of our costs, but also we for a period of time.
We shut in some of the production that was on higher cost.
So with Brent about 50 or 55 on even beyond that some of that production, obviously, we'll come back to two per view.
And that means that.
Our consolidated Opex per barrel May may show, a slight increase compared to last year.
Last year, we were in an average of more or less seven $5 per Boe. The lowest force in the second and third quarter at $6 per BOE a day on a consolidated basis.
So for 2021 at these prices were estimating it to be more or less around the similar the average or a little bit higher so send it on a half to $8 per Boe a good number for full year.
2021 at 50 to 55.
But it has been another component of value plugs, so that when oil prices recover the FX rate in these countries in Latin America. So appreciate on around 70 per cent of our opex basis in local currency. So there's those two.
Go more or less against each other on the FX rate then on on.
Commodity prices.
Thank you with respect to Europe.
Your question about production.
We think.
One thing that is not.
Noted in the guidance, we gave I mean on an average basis.
The increase is roughly a thousand borrowers compared to our previous guidance with the Capex that we are incorporating on only half of that Capex is for development.
But with these capex.
As I said on an average basis. It may not look significant but looking at the shape of the curve.
Yeah.
Before we were looking more flattish with a slight growth curve now.
Curve.
Showed some growth towards the second on top of the year. So probably by the end of the year, we should not be that far from the 45044 45000.
We were but we were before.
Additionally, I would mentioned that our main asset today, which is on a 34.
We're allocating most of our capital there on.
On that asset that has historically been a huge growth engine for our company is now migrating into a new phase of significant cash machine.
With very little Capex is spitting out a lot of cash rather than just putting out a lot of growth. So we welcome. These new phase of this book, but probably at this point, we're focusing a lot more on generating.
Cash flow on profit rather than showing.
On seat growth.
Growth digits.
Okay.
Uh huh.
And then your last question on how much of the of the food.
Over the full productivity that we announced in our recent solid.
Are we targeting with the 2021 program.
I would say.
A small fraction.
So it's something around 30 to 50 million borrowers approximately an average of the total on risky and resources.
Total total pool so.
A lot of that is in the CPO five block a lot of value in the remaining Genesis acreage.
On some of the investments that we are doing this year.
Both acquiring three D seismic on advancing on the licensing process is to start getting.
Getting ready all that acreage force.
We'll be ready to drill.
From some more prospects in 2022.
Could you give us I know you have a lot of flexibility in the program the exploration umbrella, but could you give us some kind of fleet, though how many wells have gone into CPO five how many well are going to the other block.
Yes, it's more or less.
On more or less this is not it's not going to be exact.
And keep you on fiberglass planning more or less around five wells.
On the.
Four of them are going to be exploration wells on.
On one on.
On one development, well, which should be the first of all of the campaign that we're hoping will be spud in may or June this year.
Then we're targeting two was in general <unk> 32.
One exploration well in sorry, the two wasn't going on 32 those are two exploration wells.
One exploration well in general 34 on one exploration wells in Genesis 94.
All the exploration work that we're planning for for these for these companies.
Okay, that's very useful thank you.
No problem.
Again, ladies and gentlemen, if you wish to ask a question. Please press Star then the number one on your telephone keypad.
Our next question comes from the line of Danielle quite a DLR of BTG.
Hi, good morning Andreas.
On Jean Thank you Michael.
I have a couple of questions. My first question is related to realized prices I understand you guys have very active hedging future production through different mechanism and I wanted to know how exposed you are to the app side on prices considering that.
Today on prices on a 68.
So I wanted to know if indeed.
Indeed on prices stay at these levels. If you are going on any of these levels. So that's my first question Okay.
So if you want to I mean, you can either answer it or I can.
I can go forward and ask the other questions okay.
Good morning, Matt Yeah, sure I can take that one on then you cannot you cannot the rest if you want.
So we are exposed.
Are exposed to the upside on prices if they remain at these levels.
Outside easily muted by some of the hedges that we have in place.
Particularly on especially for the first half so the first couple of the year. The full upside we will cut to read only on on roughly 30% of on production. The rest of our of our oil production on the rest of our own production 70 percentage hedged.
That's an average capital 52 are more or less gets to $53 per barrel. The full detail is included in the release.
And then for the second half of the year.
Around 45, 48% hedged so couple half of our production with experienced sport upsides on the other half.
<unk> has an average cap that is entirely on the first half.
Let me take for them to save on its closer to.
These.
The ceiling is for the second half of the year is around 60 $61 per volume so.
I would tell you we're more limited on the first high level. We are on the second half for the second half we get almost the full year.
On the full volume.
Yes.
And then for next year, we're fully exposed.
Okay. So just to make sure I totally understood.
Answer so for the first half of the year you have a cap at 60.
Now for the first half of the year, we have a cup.
First quarter is 52.
On the second quarter is 54.
And that only applies to <unk> 70 per cent of our production. So 30% from has no cup and low flow.
And then for the second half of the year.
Assuming a 60 day.
It applies for 48 per cent of the protection. So 52 per cent of the person has no low cap.
<unk> is.
These fully exposed.
Okay, great great understood.
And my simple question easily.
Yes, sorry.
Oh no that's okay, sorry go ahead.
No I was wanted to ask you on my second question.
It's related to production and I wanted to know if you could share with us more details on the expected production from the main fields, Jonathan 34, and CPO five from 2021 and onwards.
Considering that you increased your Capex. So your working program force you to here.
Yeah.
I think.
It's more on the breakdown is more or less similar to what we used to have.
Probably there's a little bit more weight in.
Particularly on the second half.
In blood on Israel, because we are adding to two wells to be drilled in that in that field on has an impact because we have 100%.
Working interest so with more or less the target. These.
Yes, 34 is between flat to up 5% growth similar to what we have we had before maybe a little bit higher than that.
CPO five we're targeting to double production compared to last year.
In Israel.
We were targeting a small decline and now we are targeting a small growth maybe zero to 5%.
The rest of Columbia use relatively flat, Chile flat Argentina.
On Brazil, so flat so that is more or less.
Then on on where the defense business.
He's going to come.
Thank you Andreas on if I may squeeze a follow up regarding production I remember that before on Danny.
Started you were.
Targeting to reach a plateau production in Genesis city for close to 80000 barrels of weight per day from a mistaken.
Does it makes sense to once again reached those levels.
Considering the current environment.
Yes.
The thing is that the things that you have to remember that after that we spent six months or more we know what PV team tableau I know each day.
The oil production oil production declines.
And then for some time, we had limited activity in the area as you know we are.
Coming back to coming back to normal drilling activity with three drilling rigs in the area as we had before so.
He's probably.
It's probably unlikely that we will reach that plateau. Following the fact that you know six months with no drilling.
You know.
We the production decline something like on a gross basis was probably six to 7000 barrels a day so.
It is I don't think I don't think that the 80000 this year.
He is a plateau now are on.
I think what is important is what I said before.
More than focusing on how much will it grow I would really focus on how much cash is going to be generating this year with $60 million to $70 million of Capex.
Just a fifth at $50, Brent is going to generate more than $250 million of operating net but.
That's that's our main focus right now really done on showing funds he shiny growth rates would.
With better show profit.
Okay. Thanks, Andreas just a very brief allows one.
Yes.
When you look on your cash flow generation or expected cash flow generation for 2021.
It is expected to be very healthy and on especially considering.
Comparing it against 2020.
And I wanted to ask you.
I mean, what are you going to be your priorities to use that extensive cash in 2021.
Yeah.
I think we can summarize that the.
The main priority always is to reinvesting in our assets and then the second on one is a combination of deleveraging on shareholder value returns. So those are the three biggest elements that we that I was going to be taking.
Taking they're probably going to be taking the cash that we generate in 2021.
Okay, great. Thank you.
Thank you.
And at this time I'm showing no further questions I'd like to turn the floor back over to Andreas will come from for any additional or closing remarks.
Thank you everybody for your interest in Geo Park on your continued support of our company.
The awards borders begin to open again, we encourage you to please visit us on our operations in each country.
Shareholder value team has accelerated the interactions on it.
This year than ever with Webinars video conference from Bayer goals on this.
Available around the clock since our management team to answer any questions or listen to your comments.
So thank you and please stay healthy and strong.
Yeah.
Thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.
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