Q2 2022 GeoPark Ltd Earnings Call

and our company. Those are the main goals of those are the inclusion of an export tax, a crude, and also the removal of royalties and consumption from the circulation. Of course, we've been analyzing the impact on our business as I mentioned, and we expect to get further clarity as an integration, as a pounding trend. And this would influence the conservation of our business. Our bringing to a broader's the Venezuelan tab. And across borders they think there's positive impact on the cost of leaving to go out

time goes right to be able to report back to all of you.

to give details on those as of now. In terms of royalties, what we would like to highlight is royalties in Colombia are calculated as a percentage of volume for our company at about 8%. And so what the current proposal appears to address is

that 8% calculation which was before deductibles from the income tax calculation will not be able to be deducted going forward. Keep in mind that this affects income tax bill of 2023. So if the reform goes forward in the same fashion as what has happened in Colombia in the past, then the expectation will be that the non-deductibility is applied for the 2023 tax bill which is payable.

In 2021, yalty 8% and the other percent of the royalty. So- and it affects the ones are- are not in kind, So it's probably 70% of our royalty. So you should assuieme something like 6% or so, which is the average of pointbeing so far in our compment.

Thirty four. Sure.

But then to the export tax, it is really, it will be very dependent on the final letter of the reform but also on how each and every company sells their volumes. If we look at our composition, we have a portion of direct exports, which is 5% of our overall sales.

then roughly half of those are sold domestically, so none of those are for overall sales, are sold domestically, but then are exported by our clients. So technically, you should be able to consider those exports.

And then the remaining 35 to 45 percent are sold domestically and refined domestically.

It is still, again, also dependent on the sales, but it's still unclear how the market will take this overall regulation. In other markets, with this type of tax, the overall market tends to go towards export priority pricing, whereby regardless of how the volumes are sold, overall pricing in the market gets affected.

But as I mentioned at the beginning, it's very early stages. We expect to get more clarity and as we do, we will be pleased to share with all of you.

I'm sorry, just to follow up with that, are these changes enough to change the way you are thinking about capital allocation for next year?

Sure. So as Andres mentioned in his remarks, we are at the beginning of our capital allocation process. This is a thorough process that goes over all of the following weeks and culminates with the approval of our budget in November .

As you would expect, of course, all of these items will be considered, but I would like to frame that within our overall framework as we define our projects, what projects will be going forward. This is going to affect one of the aspects, the economic aspects, but we will continue to look at the technical, the strategic, and of course, the environmental and social aspects of each and every one of those projects. We will make them compete, and the Colombian projects may get, you know,

and be affected by the expected tax reform. But we will carry out the process as we have very thoroughly and in detail and we'll come up with a program by November . Thank you.

Hi Alejandro, this is Martin.

I'll respond to a question on exploration for CP05. So we draw here today two exploration wells in the block and one development well. The two exploration wells, the second one is the Cantex la Menco that Andres mentioned. We have multiple targets vertically on these exploration wells, mainly Uaque, Guadalupe and Mirador preliminary results from the...

Cante Flamenco showed that we have oil pay in the middle formation. So right now we are doing the completion of that oil.

The next step is to move that rig to the indigo field. We're taking advantage of the oil prices and moving that rate to go to development wells so that we increase production of the block. We will come back to the north. And these wells, the first one, Uraka, was eight kilometers from the Hakana extension. So...

The Guadalupe Formation is one that we haven't tested yet and we need to get closer to the north. We're building the patch on that area.

Andres also mentioned that we have a second rig that is finalizing the mobilization in the southeast of the bloc, so we're going to be starting our first world target in the U.S. formation in the southeast.

That was called Aptetix. So September , October we expect to have a

And overall when we look at our exploration potential in the block we keep being really encouraged. We have the seismic that we acquired that the teams are looking at additional prospects. We have some prospects that jointly we have already agreed with our partner to drill closer to the Indico Mariposa area. And we have seismic in the north east of the block that...

late in the year, early next year we'll be acquiring.

That's a little bit of a flavor of where we are on CPO5 Alejandro.

Thank you for your questions Alejandro.

Our next question comes from Phil Skolnick with 8 Capital. Please proceed.

the next year. Yeah, thanks. Good morning. Just want to go back onto that question around 2023. Um you know, things do start to slow down in Columbia. What is your permitting situation? There look like today with respect to what you

Hey, Phil. This is Martin again. So we have different buckets. The bucket of the things that were fully licensed, some of those include basically channels 34 and 32, which is maybe development, but some appraisal. Then we move to the fully licensed that is mainly exploration. And that's where CPO5 is. Channels 87 that we will be drilling our first wells soon in the next couple of months.

and channels 94, all fully licensed.

The next bucket, if you want to call it, is the almost complete license, and that's SHANOS 124 and SHANOS 123. And by almost complete, basically we have turned in all the documentation and in some cases we already got, we're close to in the next months to get those approvals so that we can start.

drilling wells, again, channels 124 and 123. And finally, we got the packet of the things that are later in time, and on those there could be some delays, we'll see. And that's where we have Putumashio and some of the channels blocks that are on the west, 104 and 86.

But that's kind of where we are on licensing of channels and the... So technically the core areas, the really core central areas are 100% fully licensed and the next ones in line are almost fully licensed. So we're in very, very good shape.

Okay, perfect. Thank you.

Thank you for your questions.

We now have a text question from Stefan Fokod from Anxis Advisors.

how much net pay was encountered in the Conte Flamenco well.

Hey, Stefan. Preliminary logging results show that we have around 40 foot of a...

of pay in the middle of formation for counter-femics.

Thank you. Stefan's second question. Since the official appointment of the new president of Columbia, have you seen any important announcements that would impact the business?

Yes, I think that was answered by Vero and the biggest one is the tax reform that was announced yesterday. That is, in our view, the main measure that was taken that will definitely impact our business.

Thank you. And last question from Stefan. What is the current overall production?

Right now our current production net geo-park is between 39,000 and 40,000 barrels of oil equivalent for day.

Thank you. Our next question comes from Oriana Koval with Balanz. Please go ahead.

Hi, good morning. Thanks for taking my questions. I have three if we could go one by one that would be great. And the first one with regards to lifting costs, we observed a rise during the quarter compared with the previous one. Just curious on how much of that increase should be attributed to increase activities and what are you seeing from infectionary dynamics mitigating factors or alternatives that

the OPI could take to prevent Mars' erosion.

Hi, Orellana. This is Martin again. So overall, we're seeing about 5 to 10% increase on materials and services, where we see the highest increases on artificial leaves, so basically our pumps, between 15 to 20%. Overall, we're seeing about 10%. That was included in our budget, so we're within budget. When you look at the details, you might have seen the report.

Some increases, for example, in Chile where our office went up for the quarter because we had pooling activities to increase oil production. That is going to be gone by the next quarter. We have a successful campaign and the pooling is not there anymore.

In Ecuador, again, a brand new block where the OPEX was not the main objective initiative, and now that we have three wells on production with close to 3,000 barrels of oil equivalent per day, we're working really close with our partner to bring down those OPEX. We have things that we have identified, and I'll give you a couple of examples. As we are contracting for our block, we're seeing that we were able to adjust better the contracts.

clear perhaps my second one more directly to the excess cash uses and given the recent dividend increase that you announced maybe like where should we expect to see dividends heading in more broader terms or possible changes or perhaps define dividend policy how should we think of this

Thank you Adriana, good morning.

We will continue to allocate our cash flows within a well established set of priorities and this alluded to this first and foremost fund our assets and then this combination of the lever and to hold the returns.

to your specific point on dividends.

As you may recall, we doubled our dividend last quarter, and we have now increased it by an additional 50%.

to be paying out $7.5 million per quarter. That accounts to on and about a 4% dividend yield.

We see this as a base dividend, something that is sustainable even in low oil price scenarios.

but also very scalable as her company continues to grow.

So we will be looking at our other dividend payments within our full shareholder return strategy and continue to keep...

keep improving our shovel returns that we have had over the last few quarters.

Got it. And just one final one from me. Just picking up on the possibility of the flexibility and capital allocation due to perhaps a potential slowdown in the regulatory environment in Columbia. Just curious, like, what other avenues you might be considering, given your presence in Ecuador or maybe looking at new jurisdictions to start exploring?.....

Thank you, Arianna. As Martin described, we...

The core of our assets, especially with the N.Janoas Basin, is either full license or about to be licensed to be able for us to keep up with our activities in the remainder of the year, in the following year.

But irrespective of how the different measures

take place, the final forms and how, you know, ups and downs in Colombia, but we're used to this, right, in every Latin American country. Conditions are very fluid and they change. We have always had a regional approach.

as we look at our portfolio. It is a key aspect of our business strategy and I will continue to be.

So we're looking at diversification. As I think we've said many times, we probably became less regional than intended. So one of the challenges that we have is also to continue expanding that side Colombia. We have assets in our portfolio that we can accelerate, like three fields in Ecuador and three fields in Chile, but obviously that diversification is not a problem.

now obviously become more relevant.

Thanks again for taking my questions and I think that's it for this quarter.

Thank you.

Thank you for your questions. Our next question comes from Roman Rossi with Canaccord Genuity. Please proceed.

Good morning and thanks for giving me a question. So I will ask them sequentially. The first one is following one of Oriana's questions. Regarding the, you just commented the intent of the 2020 notes, right? And so if there was to be in basket, I want to understand what would be the maximum buyback we could expect from Field Park given these changes to the intent.

We paid out roughly $15 million this year and five of those in July alone.

So we expect to be able to sustain this space at current market conditions.

And of course, you know, keep working, as I mentioned, on our overall shareholder return strategy, as we do always.

So we've accelerated the time and you should expect us to.

Continue our acceleration, no?

Correct.

Thank you very much. And this one is probably for Martin. As you are seeing the transition in electricity generation in the report, I wanted to ask you how much of the effects is related to electricity generation and if we should expect a significant reduction in evaporation or breaking expenses there.

Yeah Ramon, no problem. About 40% of our OpEx in channels comes from

generation of electricity. So this is something that is big for us and it's good. We expect around 10% of OPEX reduction due to the connection to TEL. And it could fluctuate depending on the price of electricity going forward, but it's about 10% what we expect.

Thank you very much for that.

And the last one.

has something to do with royalty. I want to understand, I know that high price costs will really depend on all prices, but I want to understand how should we think of the X Ble

part of these royals is going forward.

Sorry, Roman, did you ask about the export tax?

The game another new shape factor. Can you reward healthy? Sorry?

Thank you very much.

Sure. Thank you, Roman.

So in terms of royalties, and I think you're linking right back to tax reform.

The cash royalties are the 8%. There are other components of government take, such as the X factor that you mentioned, and those are different from block to block. Each EMP contract will have a different X factor than the way it has been in the past.

in Colombia, always in those contracts are...

fully executed and are ongoing, and we don't expect any changes on the x-factors on those contracts.

Thank you very much. Thank you and congratulations from the quarter.

Thank you.

Thank you for your questions.

There are currently no questions registered, so as a reminder, it is star 1 if you'd like to ask a question.

There are no questions waiting at this time, so I'll pass the conference back over to Mr. Ocampo for any further remarks.

Thank you everybody for your interest and support of GeoPARK. We're always available to answer any questions that you may have. Please, we encourage you to visit us and our operations or call us anytime for more information you may need. Thank you and have a good day.

That concludes the call. Thank you for your participation. You may now disconnect your line.