Q4 2021 GeoPark Ltd Earnings Call

Good morning, and welcome to the <unk> Limited conference call. Following the results announcements for the fourth quarter ended December 31st 2021.

After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question at this time Crestar one on your telephone keypad. If you would like to withdraw your question. Please press star two.

If you do not have a copy of the press release, which is available at the Investor support section on the company's corporate website at Www Dot <unk> Dot com a replay of today's call may be accessed through this webcast in the investors section of <unk> 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 are subject to risks and uncertainties.

<unk> 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 1095.

These risks include a variety of factors, including competitive development risk factors listed from time to time in the Companys SEC reports and public releases.

Those lists are intended towards dense viasat two principal factors that could cause actual results to differ materially from those described in the forward looking statements listen what's intended to represent a complete list of the Companys businesses.

All financial figures included herein were prepared in accordance with <unk> and are stated in U S dollars unless otherwise noted.

Reserve figures correspond to <unk> MF standards on the call today from J Park is James F Park, Chief Executive Officer of cost does it the lager Chief operating officer.

Andreas <unk>, Chief Financial Officer, Martin <unk> direct <unk>.

<unk> <unk> commercial director and Stacy Steimel shareholder value director and now I will 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.

The report on our achievements and financial results.

During the last quarter and for the full year 2021.

As always we want to begin by thanking all of our hard working women and men of Geo Park for delivering another successful year.

And personally I want to emphasize my admiration and gratitude for this unique team of people.

As I begin to transition out of my role as CEO .

I am very pleased to announce that this gentleman beside me.

And <unk> will become the new CEO of Geo Park.

This decision is the result of a thoughtful and long planned succession process.

It is a natural and healthy progression.

And change has been a continuous positive characteristic of geopolitics history since our founding 20 years ago.

It is also the right time to make this change with.

With zero parks stronger than ever.

And with so many incredible opportunities in front of us.

And the leadership team ready to take over.

And drag there has been a key member of our executive team for more than a decade.

Most of you know and dress and share my confidence that he is the right leader to take over as CEO .

As the character vision.

And knowledge of the business to continue executing on our proven business strategy and.

And guide you apart through our next promising chapter of growth and success.

And <unk> will be well supported by our colleagues on the executive team.

With backing from our exceptional technical and operations professionals.

This is a proven team that has worked successfully together for over 10 years.

Our commercial director.

Ironic Xavier Le <unk>.

I'll now step up into being CFO .

Growing again, the depth and strength of <unk> bench.

Reflecting briefly not only on 2021, but also in the past couple of extraordinary years for the world and for Geo Park.

We have seen an unprecedented global pandemic, followed by year of resistance in frustration in Colombia and across Latin America.

These events challenged deer park in new ways that as always our team rose to the occasion.

We pushed ourselves to perform and capture opportunity.

<unk> completed the largest acquisition in our history and a massive acreage expansion.

2021 delivered excellent results with powerful cash generation from our core low cost asset base.

Five key 2021 highlights.

First.

What we do best discovering and producing oil and gas.

We drilled 32 wells in the year and learn more to extend the <unk> and had kind of fields and <unk> 34 block.

Second.

Our oil and gas production and the recovery in oil prices produced top line revenue increase of 90% to almost $700 million.

And our strong bottom line profit of $61 million for the year.

Third our drive to continuously improve capital and operating cost efficiencies.

Loud us to reduce structural costs by 16%.

And our capital expenditures of $129 million.

Generated an EBITDA of two three times that amount.

Fourth with our big cash generation, we're able to pay down over $100 million in debt and improve our balance sheet with more deleveraging in the work.

Our net debt to EBITDA ratio closed the year under two times.

Moving us towards our target range of one to one five times, which we expect to hit this year.

Fifth.

We continued to return tangible value back to our shareholders by improving the underlying value of our company buying back Geo Park shares and by doubling cash dividends for the second time in less than a year.

And our momentum is building with our Big 2022 work program already underway and yielding good results.

This is the most impressive drilling program in our history spending between 160 and $180 million to drill 40 to 48, well with almost half of those being exploration wells.

10 rigs are currently working in four basins.

And we have already drilled 10 successful wells.

<unk>, a new discovery in Ecuador, and put on production. Another prolific 4000, plus barrel per day, well and the CPO five block in Colombia.

And we are expecting some more results.

Soon from new wells being completed.

At 80% to $85 brand and not including any expected exploration discoveries.

This program will generate more than $200 million in free cash flow.

A 25% to 30% free cash flow yield.

And of course prices are even higher now and providing an even stronger wind at our back.

As always the foundation for Judah park's performance as our in house integrated value system, we call speed or ESG plus.

Our speed initiatives continued to advance the.

The electrification project is.

Is 51% complete and the solar plant is now 80% complete.

Both projects are key components of the plan announced last November which concurrently moved Geo park on its path to lower carbon emissions.

Before going to questions.

Wish to thank our shareholders for your trust and the opportunity to work for you all these years.

I look forward to continuing to serve as vice chair of the board and a mentor to the team.

And then committed to remain one of the largest shareholders of the company.

As a shareholder.

I am very excited by this transition and believe that Geo park's best days are ahead of us.

Thank you and we would be pleased to answer any questions you may have.

Thank you.

If you would like to ask a question. Please press star followed by one on your telephone keypad.

And your mind, Please press star one on supply chain.

I want to ask your question. Please ensure your line is on mute it lately.

We will post for maintenance on our questions keeping about just yet.

Our first question comes from Alexander <unk> emissions and <unk> Securities. Please.

Please go ahead.

Yes, good morning congratulations.

We're only calling the appointment couple of questions. If I may please.

First on the transition on the new chapter for Geopolitics, how are you thinking about the company going forward in terms of the opportunities that you have in terms of the growth in terms of balancing those kind of cash flow generation with the upper teens.

And also the focus of the company going forward in terms of just mostly Columbia versus Gulf Retroflex in America. That's the first question.

And then the second question is.

And just to kind of.

Follow up on what Jim said on CPO five group the scope.

What's the current production of CPO five.

We expect the <unk> kind of by the end of the please.

Okay.

Okay, Hi, good.

Morning, Alejandro Thank you for your questions.

With respect to the first question about transition we.

We feel that one of the one of the most important element of this transition is that.

I've been with Geoponic 12 years, I was born and raised in Geo Park.

Donlin gold has been part of the team for five years.

And the rest of the executive team is continuing to work jointly with us. So we see these.

<unk> is a point in time, probably for acceleration of some things, but really.

There is no.

<unk> strategy. These transition ensures the continuity of what we have been doing obviously under <unk> leadership, we have the bar set very high with the company's 20 years track record of growth and profits.

So our plan is really to continue focusing and executing on the strategy on our Ibs us US we've been doing for the last three years. So just just as a reminder, we aspire to be one of the leading independent in Latin America.

We emphasize the Latin American aspect.

I'd say, we probably became.

More concentrated in Colombia that we were intended to.

On the part of our challenges going ahead would be how are we going to expand on.

Continue broadening our footprint throughout the region again as it was in the back.

We want to be the best ore refiners, who want to be the lowest cost and safest operators want to be producing the cleanest some kind of thoughts we call. It.

Hydrocarbons.

And then continue to delivering consistent free cash flow and value to our shareholders and stakeholders and all embedded in one of the best or what we call our secret weapon, which is our unique culture that rewards.

Basically it gives us all of the United together as a team.

So.

That's pretty much what we see going forward really emphasizing continuity on really.

So we think the timing is perfect.

2022 over the next few years.

We have the most ambitious work program ahead of us.

<unk> with high oil prices right now so we have significant cash flow to fund all of the things that we want to do and more.

Okay, and then on the <unk>.

<unk> five <unk>.

Okay. Thank you I'll, let Marty answer on your CPO five question sure good morning, Alejandro the CPO five.

We continue to be very excited if we recall when we acquired <unk> through the field was producing our own 8000 barrels growth that's $2 4000 barrels net.

We doubled that production right now we're producing.

Around 17000 barrels gross that's it above 5000 net to us.

We had a very good results from the Eagle Ford well that continues to produce in flowing naturally with no water. Unlike gene said.

<unk> 4000 barrels of oil per day right now the rig is finishing the drilling of <unk>, which is.

Another development well, so we expect to continue increasing production and finish the year.

Probably in the order of 20% to 40% increase production and on top of that we have the opportunities of exploration wells.

As soon as we finished drilling in <unk>, we're moving into our first exploration well for the year call on BRCA and that is in the <unk>.

<unk> west of the field.

Close to an hour, how China DNF field.

That rig stage building all year long so.

We continue to be very excited about <unk> future.

Okay, that's very clear thank you.

Hey, guys.

Our next question comes from Stefan <unk> from just that following this.

Go ahead.

Yes morning, guys a few questions for me.

First one is what's the current overall productivity in Colombia, So you talk about CPO five.

What about the rest and then.

I think you started touching them up exploration what does the shooting look like so we have the first <unk>.

Well al.

CPO five then whats the next high impact exploration wells in 2022, and lastly, could you give of where the rounds.

And how you see their way pops to accelerate the development of Genco.

You see production.

From the way thank you.

Certainly you Stefan and good morning to you and.

Answering in order.

Turning traction in Colombia, and right now we are above 34000 barrels of oil per day compared to where we finished the year, that's about 3% to 5% increase.

We talked about CPO five implant in Asia, we had successful drilling.

And the production has increased in that field and channels.

We have maintained the production and then we have some wells that we're about to complete.

So.

The portion of where we are today on production.

As we look at the high impact wells that will be drill.

<unk> five.

Followed by <unk> and <unk>, we have more exploration wells to be drilled.

Now one of the strategies that we're following he says each of those locations four exploration wells.

More than one.

Handler or place to drill the well so if we're successful in the exploration well, we can immediately agree with our partner tool umbrella appraisal well and continue understanding that discovery.

If we move out of CPO five.

E <unk> 87.

In that block, we're finishing all the preparation and we would be spending the first well in the second half of the year and that's a four wells back to back program that we have agreed with our partner.

When we move on to another block <unk> 94 in that look again I agree with our partner we would be fighting the first well in the second quarter of this year.

And as we move out of Colombia into OEM.

And like you said, we finished a very successful <unk>, we're right now doing the completion of the three well so more to come on that.

And in that block and they paid equal look we're already discussing with our partner to accelerate more activity.

So that that is something that we're discussing based on the results that we had.

They love that we operate which is called a faithful.

We started doing the seismic and we are on plan to start drilling the first well in the second half of the year as well so.

You can hear very exciting and the team is very focused on executing on drilling all of these heightened for globe.

And I think finally on <unk> you mentioned on Okay. What are the next.

Uh huh.

So what else can we do as we mentioned.

We have.

We're having discussions with our partner to basically.

Continue appraisal the discovery that we had and we will see on the results of any additional drilling.

Thank you <unk>.

Understand well.

There is only one independence prospect that would be doing at.

CPO five is that right because it was at 205 and then it is go I don't know more.

77%.

Exploration not for video.

As Stefan in CPO five with <unk>.

Our partner, we had already agreed on 10 locations. So we have 10 exploration locations that are independent.

We're drilling them with this first rate that house activity throughout the whole year, we would be drilling about seven to eight royalty that rate and we have a second rig coming in the second half of the year. So.

It's several locations that we have already agreed on.

And by the way.

Our team is looking into the seismic that we acquired last year.

The team is very excited on what we're seeing there in addition.

So on our reward program, we would be shooting three D seismic in the north east of the block as well.

We have prospects already identified.

For the whole year.

So to clarify the fund.

So right now the rig is drilling in <unk> that is the last development well for now.

<unk> did in the <unk>. This year after that is a back to back exploration campaign in CPO five the first prospect. These will record one that is in the northwest of the block, which is the closest area to the south of General 34 that is a very exciting prospect for us.

The second one following Rocca is called plumbing core.

Another prospect that is also in the same area.

Following that there will still be a continuation of either more exploration wells and we have the names upticks Alondra you don't Milano Theres no point on us, giving you the exact names because as you know drilling schedules can change.

We may replace some of those exploration with if we have discovery rocker and Flamingo, we may want to add development.

To go into an exploration well.

For sure is going to be go back to drilling.

Drilling.

Exploration wells, which could change in the event of a new lease coverage.

And also as Marty mentioned.

We are working with a partner to accelerate the campaign by bringing a second rig in the second half of the year.

Thus for CPO five.

That's clear thank you very much.

Okay. Thank you Stephane.

Yes.

As a reminder to ask any further questions. Please press star followed by one Ken Thank you Pat.

We now have ESG webcast questions from Daniel <unk> with BTG Pactual.

First question is good morning can you provide more details on the reasons behind the increase in operating costs of royalties and the apex and what are your expectations for 2020.

Yes, Thank you Danielle.

<unk> quarterly well first of all your Opex question.

If you look.

Quarterly basically what explained the Opex increase in the fourth quarter was an inventory build in blood on Asia.

The way, we sell the crude there.

From time to time, we build inventories and from time to time, we reduce inventories because we shipped through the pipeline on until we fill the tank.

Anchors, we don't sell so from quarter to quarter, sometimes that inventory builds and reduces.

So if you look at our Opex in Colombia on the first Q was seven $4 on the second <unk> was seven $3, so more or less flat.

It went down to $5.

On the third quarter.

With that inventory and then it went up to almost $8 from the fourth quarter. If you look at the average of the year was slightly less than $7 $6 $8. The opex in Colombia overall company Opex for the year was about $8.

So that.

We were expecting and this is already built in our guidance. We are estimating an overall opex increase.

About 5% less than 10% so from $8 per BOE. This year, we're estimating something like eight five to $9 for 2022 again. This is built in our guidance already.

<unk>.

That's how we're seeing it the fourth quarter.

Third quarter was more of a one off event.

But you can take the fourth quarter, the highest range of the Opex that we're seeing for next year basically.

Thank you. Daniel next question is are you considering to modify your hedging strategy, assuming oil prices remain stable what would be the expected realized losses related to the hedging strategy.

Okay, I'm, sorry, I missed to answer the second part of your first question about royalties, so I'll get to the hedges in the second.

The royalty you asked about royalties increased.

On the scheme of royalties and most of the countries in the region and that is the case for example, Colombia and Ecuador. The increases we had oil prices so with higher oil prices, we get higher royalties so to give a reference at $60 Brent.

Our royalties per borrowers are more or less eight to $10 per barrel.

That $100 per barrel.

Brent our royalties are more or less 19% to $21 per barrel. So that is more or less the order of magnitude.

<unk> of price from 60.

Tequila brand of royalties about 13, 17% of our price.

And then at 100, the royalties about 20% of our brides.

And then two hedges point.

Obviously with the spike.

Oil companies are hurting from the hedges, we're not we are not the exception we are experiencing losses or we're not perceiving the full upside though of.

This sudden spike.

We believe in a disciplined long term strategy, obviously, we review and we monitor our hedges continuously and we adopt this strategy all the time.

So.

We believe that when oil prices are high is one of the best opportunities to hedge appear.

And I.

And also if you look at our hedging position right now we're fully hedged for the next 12 months. So we've added some more hedges in the recent biggest spikes.

But not significantly.

But for the next 12 months, I think we're more or less more or less covered.

And then with respect to your point about potential future losses right now to read the forward curve is looking at least in backwardation.

So if you look at the chart of the floors and ceilings that we disclosed in our release.

You can see that we experience to have some more losses broadly on the second quarter. This year.

And then going down on the on the third quarter of this year, but then fourth quarter of this year in the first half of next year.

Ceilings are all above what the Brent curve is showing today.

So you can.

You can do the math with the others.

Are there any time.

Thank you Daniel last question can you provide us update.

It's not always Astra and Brazil, and so let's say again, assuming oil prices remain high what would be your priority is to allocate the excess cash.

Yes sure in Brazil.

Suction hasnt closed yet because all the conditions precedent for the transaction to close have not been met these conditions should be met by the end of the month.

That doesn't happen then.

Close.

So all of the conditions precedent are beyond our control. So it is not up to us to finish that.

But in the event that the transaction doesn't close.

We're still in good shape the field is performing very well it doesn't require any cash from us.

Production is performing better than expected and prices are performing better than expected. So if that happens then we will have more production and cash flow this year as well so but the update is we need to wait until the end of the month to see if the conditions are met.

The closest really is not in our control.

And then with respect to the excess cash flow priorities as we always say the number one priority is going to be fund potential acceleration in our in our organic portfolio.

All of the teams are working now.

I've been working for a while and also working with our partners in identifying all of the opportunities for us to accelerate our work program. When we gave the guidance. We said that above 80, we should be expect it to be adding something like $30 million or more to our capex.

Also that could be expanded further as we said earlier on the back of any new discoveries that could appear.

That would be our number one priority for the cash flow and then the second one it's always a combination of debt reduction and increase shareholder value returns, we announced this morning, we doubled our dividend.

But now it's going to be somewhere around two over 2% dividend yield.

We think that still can be improved going forward.

With the cash flow that we're going to be generating this year.

And also.

We expect if oil prices remain at these levels. We expect we will have enough cash through.

To fully cancel our 'twenty to 'twenty, four bond, which became callable in September last year.

And then any excess cash beyond that is always going to be used for general corporate purposes could vehicle mutation of the previous priorities as well.

Okay.

Thank you. Our next question comes from Craig <unk> at Morgan Stanley . He says hi, everyone and thanks for the code just wanted to ask what are your plans regarding the balance of the 2020 bonds that became callable last September .

Alright, thanks, very much loan growth.

Yes.

As said before oil prices remain.

These levels or maybe even a little lower we are confident that we can cancel those balancing pool.

That's going to be happening throughout the year.

As we build up that cash.

Thank you we have nice to ask questions I will now hand back to James talks any closing remarks.

Okay.

Thank you everybody for your interest in <unk> Park, and your continued support of our company.

Our shareholder value team is available around the clock as you know as as our management team to answer any questions or listen to your comments.

Thank you and Bob I'll Seo Park.

Yes.

This.

Today's call. Thank you for joining you may now disconnect your lines.

Okay.

Okay.