Q2 2021 GeoPark Ltd Earnings Call
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Good morning, and welcome to the <unk> Limited conference call. Following the results announcement for the second quarter ended June 30 of 'twenty 'twenty 1.
After the Speakers' remarks, there will be a question answer session.
If you'd like to ask the question at this time. Please press star followed by 1 on the telephone keypad, if you'd like to reach mature. Your question. Please press star followed by 2.
If you do not have a.
A copy of the press release it is available at the Investor support section on the company's corporate website at Www Dot Gi Hoxton Park Dot com.
A replay of today's call may be accessed through this webcast and the investor support section of the <unk> 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 and historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those described.
With respect of such forward looking statements. The company seeks protections afforded by the private Securities Litigation Reform Act of 1995.
These risks include of.
Variety of factors, including competitive developments and risk factors listed from time to time and the company's SEC reports and public releases.
Thanks for this 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.
The prepared in accordance with the Rs.
And as stated in the U S dollars unless otherwise noted.
Reserves figures correspond to the PR MF standards.
And on the call today from <unk> is James F Park, Chief Executive Officer of.
Christa Zubillaga chief.
Chief operating officer.
Andres Ocampo, Chief Financial Officer.
Martin for out of the director of operations and Stacy Steimel.
Shareholder Ali director.
And now I will turn the call over to Mr. James Park. Mr. <unk> you may begin.
Thank you and welcome everyone.
We are joining you this morning, with our executive team and Colombia, and the U S.
The report on our achievements and financial results during the second quarter of this year.
Firstly.
I wish to thank the women and men of GFR for their efforts and professionalism.
And managing our business and <unk>.
<unk> through any volatility such as the recent unrest and Columbia.
Since our founding the 19 years ago. This backbone and the spirit are key drivers of our successful steady and continuous track record of growth and value of delivery.
We also want to especially thank our shareholders for their important support and for the many constructive conversations we had with them prior to our annual general meeting.
Your votes and messages were clear.
And we see the assess further positive momentum for all of the changes and continuous improvements.
And we have been pushing for and carrying out.
1 of GFR of fundamental principles is to work to get better every day and our history reflects a continuous.
And sometimes challenging evolution.
We embrace the changing future and see it as a source of infinite new opportunities.
Particularly and the hyper competitive world and exciting energy transition we are in today.
Our company has built its reputation on operational performance and we have repeatedly shown following our 19 year track record that our team can consistently deliver and any oil price environment.
This is based on for key and different skill sets.
And the full value chain of the E&P business.
And we have invested and and built within GFR.
These are our ability to 1 the explore for and find new oil and gas reserves and fields.
To safely cost effectively and efficiently produce our oil and gas.
3 the compatible with and minimize any impact on the communities and surrounding natural environments, where we work and.
And for continuously locate pursue and acquire new perspective assets at the right price to build and enduring short medium and long term growth fairway.
Vince Technical Knowhow has created our current exceptional low cost asset base with our powerful cash generation that allows us to self fund our business growth.
Manage the volatility inherent in our industry and simultaneously get back to our shareholders.
For example on the second quarter 2008 and 21.
Our operation and financial performance deliver tangible value back to our shareholders through.
Significant cash flow generation within the operating netback of $74 million.
Which represented more than 2 times, our capital expenditures.
Profitable operations, which allowed us to reduce our total debt by $105 million <unk>.
Extending maturities by more than 2 years, and reducing our annual interest cost by $9 million.
While keeping a strong balance sheet with $85 million.
A new debt structure, which now provides ample flexibility for further deleveraging.
Continuing to execute our share buyback and paying cash dividends.
Constantly working to reduce our cost structure and making the I'll say.
Lower cost and more efficient operator.
And and ongoing review of our organic asset portfolio.
And as always the foundation for <unk> performance is our in house integrated value system, we call speed.
We continue to push forward, our speed initiative, which pre dates and is more comprehensive and ESG and is helping us achieve our goal of having the cleanup and kind of hydrocarbons.
This also includes our continuous and successful efforts to safeguard our team communities and operations from the lingering COVID-19 and the region.
<unk> was recently named 1 of the most other companies and Latin America, and the 2021 institutional Investor Survey voted on by the International financial community, which highlighted our team and its crisis management of Covid and our ESG disclosure.
The second half of 2021 is underway and we are moving forward and all aspects of our business.
We have 6 rigs at work our team continues to identify attractive new leads and prospects and are big land base and is fully engaged and getting every molecule of oil and gas safely cleanly and profitably out of the ground.
Yeah.
We also are working with all of our partners such as on the CPO 5 block to develop of options and alternatives to accelerate our work program execution.
We're drilling 20% to 23 more wells during the second half and are targeting production growth to approximately 39% of 42000 barrels per day.
And we have just kicked off of key project connect and the National energy grid and Colombia by the end of next year, which will lower cost operational risks and improve our carbon footprint.
Our team has also initiated our annual capital allocation exercise to build our work program and budget for 2020 to selecting the biggest shareholder value, adding projects based on strategic technical economic and social and environmental.
Parameters.
We look forward to spending time with our asset management teams, while conducting this critical exercised to ensure our capital discipline and flexibility.
Value for our shareholders.
Our huge organic land base, and a rich inventory of new and organic potential projects provides and abundant and exciting opportunity set including highly attractive exploration prospects and our core <unk> 30 for block.
Our CPO 5 block.
And as well as of our again on exploration acreage adjacent to <unk> 30 for where we are partnering with Echo control.
During this process, we also determined and the cash that will be allocated to get back to shareholders and or used to further delever our company today.
Today, the board approved the doubling of our quarterly dividend to our shareholders.
Thank you and we would be pleased to answer any questions you may have.
If you would like to ask a question. Please do so my question I wanted to know kind of thank you I'd now.
Yeah.
The <unk> from J P. Morgan.
And kind of you along and now if you'd like to proceed with your question.
Hello, and thanks for taking the question good morning came on the.
And the Copa.
Well and safe.
A couple of questions on my side for when you think about the second half production on the 39% to 40000 barrels per day.
And you see the.
The production resumed and throughout the quarter and the GAAP tier what im trying to think how should we think about the active prediction and for each year to think of both 2020 true production and then the second question is on.
And the portfolio manager and so you have.
Some of you are looking at some alternatives for.
Your assets and Argentina.
But I haven't seen anything about Chile.
1 of your plans for growth.
And <unk> blocks.
All of it got it good morning, Thanks very much for your question on the Coker doing well as well.
And then Martin will go into into the second half production.
That's true.
Sure.
We've we've mentioned and the other day on the on the relief that we initiated a process with respect to our Argentina assets and the that process is going well we are in the middle of management presentations and non binding offers.
And.
And when we.
Whenever we have more information on where we'll continue to update and the inverse.
Through press releases.
Our expectation is to be able to close or not to close by the place to have something signed on tight up hopefully before the end of the year.
We'll be updating you.
More information is cash.
Okay.
With respect to your comment about how about Chile.
And I think we've spoken the Boston, we mentioned many times the deal.
Some of the assets or the less performing assets outside Colombia that also have more limited upside.
Our subject and.
In our and our company are subject to a per day.
Okay.
Usually the situation with the Chilean and historically has been.
More difficult because 2 day to particular markets.
Basically are effectively the only private company and the country.
Oil company in the country. So.
And that limits our option, but the team has been working on developing the developing different options for us too.
Yes.
To offset some of.
Effectively define what the strategic.
I've done this for Chile are going to be.
We don't have the nothing definitive yet that we can communicate.
But it is part of the portfolio of the because of its limited appetite today.
It is likely to the subject the subject to the going down the road rather to be of long term on that of the company.
And then back to your question about production on the second half.
I will the.
The net marketing respond the thanks.
Thanks, Andrea good morning.
Ricardo.
And.
For the simple half of the year, we're expecting total production.
<unk> to be between 39040.2000 barrels of oil equivalents per day.
The exit.
Point would be between 40 to 43000 barrels of oil equivalents.
Roughly 85% of that is our current Columbia production.
And.
That increase in production and is based on the activity that we're really have going on assay Jim was.
Mentioning we have 3 rigs drilling in our Shannon and 34 block.
And we're moving a rig and blip and Asia. The drilled 2 wells and we're also expecting the start of a drilling operations and the CPO 5 block by the end by the last quarter of this year.
Okay very clear.
Sure.
Thank you Ricardo.
Yes.
Okay.
And the next question comes from Alejandro Demichelis from now secured.
100 of your launch.
Please proceed with your question.
Yes, good morning, all hope you're all well.
So the 1 question to follow up on on the for US in terms of your strategy.
How is your thinking now about.
Say the rest of Latin America.
If the fed.
With Argentina kind of.
The divested wood with what you have down in Brazil.
The <unk>.
The growth.
For <unk>.
Colombia.
And as a follow up from debt you also mentioned the inorganic portfolio of pipeline that you have so maybe you can comment on that the other good too.
Sure. Thank you Alejandro Andre here.
On.
With respect to your question about the.
The rest of of Latam on our approach and view of the rest of Latam.
Really not you know on and we always say the same thing we look at the region first with no borders will start from the sub surface and look at the pacings on.
I think it is smaller.
Asset quality nature, and upside rather than on where the asset is located.
So currently with the portfolio that we have today organically, we have our hands really full with the massive.
The portfolio of incredible opportunities to drill.
And I would say 95% of that is within Colombia on even within Colombia, probably around 34, So thats 30 for CPO 5 and all of the rest of the exploration and acreage around it so with the asset portfolio that we have today, we have a huge inventory of all the things that we can go after.
Consolidated and Colombia, So I think when you look at on organic portfolio, Yes, that's the Colombian focused strategy.
And that doesn't mean that if we can find on the if we.
And our team discovers and counters up on.
Our CPE of such a beautiful.
And incredible asset like CPO, 5 or even John of 34 of that happens.
It happens to relocated in Brazil.
And I don't think the the borders of the country location should limit us for.
But the and asset like that so the way to look at it from our point of view is really the.
And the sub surface quality of the assets on obviously you would need to be located in countries, where we where we are open for business right now.
There are some countries that are off limits for us and Latin America, but that's the way I reported on in any case, given the incredible organic portfolio that we have we have a lot of things to do and to deliver on the on the.
Last couple of years of asset additions that we've done to the company. So we expect 2022 of to be a very busy year and.
And starting drilling and tapping some of those great prospects that we were able to incorporate to the company throughout.
The famous land graph debt with it in 2019.
So sorry for the long answer, but I hope thats more of less clear on the way we are thinking about the.
The the Colombian focus.
Versus whether we still look at the region or not.
That's very clear thank you.
The kind of moving into it will be the framework here.
Between kind of you know.
The average.
Capex to develop those assets that you're talking about on return to shareholders. How do we think about what the optimal leverage for global for the Hawk, particularly with what you're talking about the increase in production with second half of the the free cash flow and more growth and to put into 'twenty 2.
Sure. So if you look at.
The last couple of years, we've prioritized 100 per cent of the capex to be fully funded.
Within our own cash sales.
Priority on the basic element the.
Our work programs for which our war program out of defined on.
And on the second the.
Second the element for us to allocate capital towards basically a combination of debt reduction on shareholder value and returns we announced today that we doubled our dividend and we've continued to execute on our buybacks.
But also earlier this year with data of liability management transaction.
To accomplish mainly 2 things the first 1 on was to reduce the total size of our debt by approximately $100 million.
The more than that.
Reduce the cost of the visit.
But also structure of our debt in a way that we have the optionality to continue bringing down the total size of the debt and.
Anytime we have excess cash or we can have the type of optionality and right now today, our total debt is separated into instruments and the remaining amounts on the 2020 for us.
On the $500 million bond that matures in 2000 on 'twenty.
So you should think of the 2020 for US is something that will be gradually be repaid over the course over the next I don't know of couple of years, maybe hopefully earlier than that.
But that is the fraction of the debt.
Yes.
Basically go away over the course of the next 2 years and then.
Keeping the $500 million 2027, thats more of less that more or less gives you.
Where we are in terms of comfort zone.
And with the levels of EBITDA that we're estimating for all of this year next year that should put us somewhere below the onetime net debt to EBITDA.
So the average so that's I would call that more or less of our comfort zone.
We would always work on trying to reduce the total size of all of our debt.
Okay, that's very clear thank you.
Yeah.
As a reminder, if you'd like to ask the question today. Please press star followed by 1 on your telephone keypad to interest and a question.
Our next question is coming from Steph.
Definitely Rocco for.
On the closings from <unk>.
Stephen Your line is open now if you'd like to.
Thanks for question.
Yes, Hi, guys a few questions for me the first 1 I saw that for the second quarter and our ROE.
And the Opex for Colombia, and just north of 7 day Powell and I was wondering whether this is the run rate and your run rate or you would expect of that 2 to go down.
Second question there is a big.
Let's see working capital movement. This.
And this quarter that impacted positively the cash flow and I was wondering whether we should expect to reserves over the next quarter or whether again, it's more a collection of.
Is to recall the situation.
And the date on you basically with regards to when you would start doing equally well. Thank you.
How is the funnel.
Good morning.
Thank you for your question.
With respect to your question about the Opex in Colombia, and this quarter there was a small increase because of.
We have Latin Israel.
Chatting for for a period of time, and basically and there was a reduction and the inventories and debt generated something like $30.40 per barrel increase and the optics.
But more or less of the run rate for the full year.
And is more or less and the average of us between for Columbia of between 700 and centered on the hub.
The loss per barrel consolidated debt is more or less of the the number that we're seeing in any case Martina and his team continuously have and are working on initiatives to different initiatives to push of those numbers balance.
And like the connection to.
To the greed and were expecting.
And for now.
Okay on some other initiatives of the team is working but for now.
Something between 7% and our house.
For R&D is more of a lesser originally and I remember for for Colombia consolidated.
Your question about working capital you are correct basically what we did is for.
For the couple of months.
And where we were facing basically disruptions and Columbia, we had paid down a $115 million. So debt at the same time, we were facing disruptions in our operations and our core cash flow generating assets.
Flooding on some other things on top of the payments at the same time, we paid.
Cash taxes for $40 million.
So basically to protect the cash and to expand our minimum cash positions we.
It will trigger the and option that we're having our sales contracts to anticipate collections.
On the basically it's more or less $15 million that you see increasing work of improvement in working capital is coming from there. So over the course of the next few months you should see that reverse.
The Aussie operations have now normalized.
That's the way.
And then your comment on all the Ecuador Martin to answer the thank you Stefan and based upon so and in Ecuador, We were we're encouraged as the U.
You know.
And the government has changed and they are in pushing for activity.
So we have 2 blocks there is big for block.
We were waiting.
Waiting on the environmental study of approval, we expect that to be ready by November.
And we have already awarded the seismic company. So we expect the.
Late this year first quarter of next year to be acquiring <unk> seismic and the block that we operate and the other block the police.
<unk>, which is operated by our partner.
And it's on the same level and timing for the and.
Environmental studies, we accrued around November and then we will move of hand with drilling the well.
The first of all on that block. So we're encouraged by that and those are the the timeframes that we have in mind.
So you're talking about what's the first 1 day in Q1 stores and 22 something on those lines because of England.
Yes, correct okay.
Okay.
Okay.
Thank you guys very useful.
Thank you.
Our next question comes from Daniel Guadiana from BTG Pactual.
Your line is now open if you'd like to proceed with your question.
Yes.
Hi, good morning, guys.
And I have a couple of questions.
My first question is related to your hedging strategy.
And why does the gain we saw it on the grants and a significant amount of realized losses related to the hedging strategy and the Q and I wanted to 90, you could provide some color on what the expected for the second half of the year.
And your non in or not and modify your hedging the story.
That's my first question.
On the second question is related to CEO of <unk>.
And I wanted to know if you can provide and provide us some color on the drilling campaign and the fields.
Capital are you planning to allocate the CPO 5 <unk> net.
And how do you feel that your relationship with you on the range of <unk> has been evolving and the lab.
Yes.
On a couple of months.
Thank you on Hana.
Thank you.
The.
The question with respect to hedging.
Unfortunately, the hedging.
The result of the realized losses are always depending on the realized prices. So it's hard to forecast and it always depends on realized prices.
As we commented on screen and we call.
The 2 effects the start to occur from or started to occur from July 1 on.
1 is the fact that the ceilings started to be higher.
On the first half.
And then also the total percentage of hedged production was lower so the first half of the year, we had nearly 80% of our production hedged weighted ceilings of 50 to $53 per barrel.
So we just went through the worst part I would say so the biggest losses have already been recorded for.
For the second half of the year.
It depends on what the realized prices aren't going to be but if you estimate something like a $70 Brent flat $65.70, or flat that could generate 20% to $25 million of additional cash losses realized losses over the course of the second half of the.
Yes.
To give you an idea.
We have more or less.
57% on the third quarter and of 51% on the fourth quarter hedged more or less.
And then the ceilings are $52.62 on the third quarter on the.
The fourth quarter of $64 and that's for the hedged production.
So the.
Which is roughly half of our production so.
And that more or less gives you the idea on on what we are expecting on the second half of the year and then with that with those price levels.
We don't expect any losses.
<unk> because of the the ceilings, we have the there are about $75 per barrel.
For the portion of stuff we have hedged.
With respect to your comment about the hedging strategy.
As I said, we are going through the most difficult part of the hedging which is we have a lot of barrels hedged that worth on when oil prices were low.
And where we were probably hedged below our expected target and.
And that's why it is today that were suffering with losses.
But this is the part of the.
The cycle, where more hedges should be ordered for the following quarters. So we are.
Keeping our discipline.
And we're still targeting to have roughly.
40, and 50% of our production hedged more or less up to 12 months ahead on these times, where oil prices are on the high levels. This is where we believe that those hedges should be implemented.
We are doing it slowly conservatively on a layer by layer basis monitoring the market on a daily basis and every time, we find the good window.
Yes, a couple of thousand barrels more to those hedges on.
More or less for the way we expect to continue.
Executing on the strategy, we're not speculative, but we're just trying to protect the return for our shareholders and.
And related to the the investments that we're making we have the luxury that we can make.
Double and triple digit returns on our investments and debt, we don't need significant high prices to achieve those returns and Thats why.
We are.
And are expecting too.
And continue that way.
Yes.
And then Martin.
Martin to answer the more color on CPO 5.
Hello, Danielle so on CPO 5 we will be drilling the first development well in the call for <unk>.
In the fourth quarter of 2022.2021, sorry.
And this will have out half of columnar from in the call 1.
The nickel, 1 and it's still producing more than 5%.
And as the cumulative of.
For 5 medium barrels. So we continue to be very excited about these assets.
And following the drilling of debt well, we will drill 1 to 2 exploratory wells and the campaign will move continuously into 2022.
So we expect of DVT 2 continue to ramp up on stabilized with 2 rigs drilling.
From the last quarter of this year for <unk>.
Currently were producing around 13000 barrels of oil per day.
And the.
Concerning the question of other relationship we continue nurturing it and.
And I will give you..1 example, we had a very tough month when the blockages, who are happening on jointly between both partners. We manage to work together. So the trucks were available to minimize the amount of volume that we will have to shut down and.
And so we're working on debt and and right now as Jim mentioned we're.
And and alternatives so that we can accelerate the work program.
Thank you Martine.
Hey, Joe.
And then the free solo apps.
The share with us.
How much capital are you planning to allocate and CPO 5 this year.
Certainly so yes, we.
We have.
And.
$5 million and.
By the end of the year, we expect the lean the order of $10 million to $15 million, our working interest.
Okay, great. Thank you Martin.
And Andreas and I would like to the Joseph a very brief follow up on the hedging sorry.
And I understand and you have.
And is there anything where you have basically put spreads and.
2 of those colors.
Wanted to know if youre considering too.
And <unk> in order to non key future on a portion of the Q2 production the of future cash flow generation.
Is that something that you're considering and continuing right now or what are you sort of taken.
Yeah.
No.
Thank you Danielle and nothing is out of the table the different structures on the different options and we've executed different structures and different options and the path.
And nothing is off the table. We are we consider everything we work internally, we have internal experts and outside advisors that help us on the.
We continuously look for what's the best the.
What's the best for our company. So so far of the way we've approached.
The higher oil prices to try to secure.
The minimum floors and trying to keep some of the upside on.
And we're limiting it.
These prices.
Basically if we were to fixed.
We wanted to fix the.
Tried to fix whatever is current prices today that would mean that we would limit the upside to a much lower number.
So far.
We've had selected on preferred.
Of widespread around $20 or more of a of sprint.
But again as I said, we're willing to consider.
And the option on and all different options.
And that we may find better for for what we're looking for.
And desktop the reminder.
Great.
Yes, we recognize when we might be sort of in the.
The balance sheet of our painful for everybody, but the world is.
And more than 200, bankruptcies and $12 billion worth of hedged.
Hedging losses I read somewhere.
In the U S 1 of them.
And so we're not alone, but some of the the companies that have succeeded.
And survived through the downturn was basically those that have appropriate hedging strategies in place.
And there are 2 thank you Andreas on Monday.
For the call.
Thank you and yes.
Our next question comes from Gustavo <unk> from Bradesco DVR Gustavo Your line is now live and if you'd like to proceed with your question.
Alright, Thank you and thanks for taking my question I have 1 quick question on production looking.
And looking at sort of guidance and you'd have to average something like 40 to 42000 barrels per day and the second half of 2000 and plenty of room.
And so my question is 1 of the production stands now and why.
The third the milestones necessary to achieve this goal.
Yeah.
The Gustavo and good luck.
Wanting.
So our production right now is in the order of the 39000 barrels of oil equivalents per day.
On the as we mentioned at the beginning.
The increase that we're going to have is coming from the activity that we have.
And with the 3 rigs that will stay drilling and channels 34.
Also increased production in the blood on ECL block as we have 2 wells to be drilled we have 100% working interest and there and finally the.
And the CPO 5 block and.
Filling of the equal for well as we were mentioning before and.
And with Danielle.
Alright. Thanks.
Okay.
Our final question comes from Australia from Compass Group and his question is.
Do you see the proceeds from asset sales and Brazil.
So I think we make on this just talking about the use of proceeds from assets Shannon and I presume.
Okay, great well thank you.
We're expecting the.
Those transactions are going and in due course, we're expecting to close hopefully before the end of the year. If there are no further delays the proceeds from those should be somewhere around.
The reality of and dominated so should be somewhere between $25.28 million.
And our expectation is to to include those of our cash position and follow all of our cash flow position and follow.
And the normal priorities for capital allocations that we follow.
Our assets first fund are based on <unk>.
First and then second to pursue a combination of debt reduction and shareholder value return.
That would be.
Effectively they would follow the same priorities that all of the rest of the for cash.
Cash flow and everything that is coming.
Every day.
We currently have my other question some of them will come back to the management teams.
Yes.
Thank you everybody for your interest and geopolitics and your continued support of our company.
Of the world's borders begin to open again, we encourage you to please visit us on our operations in Latin America.
Our shareholder value the team has accelerated the interactions this year than ever with Webinars video conference on direct cost and it's a very.
The level around the clock assets, our management team to answer any questions or listen to your comments.
Thank you and please stay healthy and strong.
Yeah.
This concludes today's call. Thank you everyone for joining and you may now disconnect your lines.
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Yes.
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