Q3 2022 GeoPark Ltd Earnings Call
Culebra T. Mr. Andreas a campaign famous campaigns you may begin.
Good morning, and thank you everyone for joining the call.
We're connecting with our management team from Bogota, Colombia to report on our third quarter financial results and provide guidance about our expected 2023 work program plan.
During the third quarter, we invested $43 million to drill 11 wells and increased our oil and gas production by 8% compared to the same quarter last year.
With a continued main focus on developing our core general 34 block.
Strong production growth coming from CPO five.
Clearly one of the fastest growing and most economic projects in the region.
When <unk> purchased CPO five block was producing just 8000 barrels a day and today production just tripled to over 24000 barrels a day with netback of approximately $50 per barrel.
We continued accelerating our drilling activity with 13 rigs active across our assets our.
A new company record this is about 62% higher than last year.
Gratulation to the GOP team, particularly those in the field for developing another quarter of record results.
And maintaining such an intense level of activity, while keeping our people safe our emissions under control in our operations is low cost and efficient as possible.
Our production base generated strong cash flow from operations over a $140 million, which more than doubled the same quarter last year.
We generated more than $3 per barrel and adjusted EBITDA for every dollar that we invested and outstanding capital efficiency.
Revenues were up 48% adjusted EBITDA was up 63% and we had record net profit of $73 million, which is $1 $2 per share during the quarter.
As we usually mentioned following the funding of our investment program, we have allocated significant capital to our balance sheet strengthening and our shareholder value returns initiatives.
During the third quarter, we fully redeemed our 2024 notes for $67 million.
Telling our gross debt reduction of $170 million since January this year.
<unk> ended the quarter with comfort doubled net leverage of 0.8 times well below our long term target range of one to one five times adjusted EBITDA.
Our cash position at the end of the quarter remained at about $93 million.
We continued our base dividend program as well as our discretionary share buyback.
Geopolitics paid 13 per share in dividends, which annualized represents nearly a 4% dividend yield.
<unk> has completed its share buyback for a total of $30 million in the last 12 months, which is over 3% of total shares purchased.
And we have also announced that we will do more in 2023.
Our teams are BC executing our ambitious and aggressive 2022 work program, which will continue full speed during the next year as well.
We currently have six rigs in general 30 for two rigs in CPO, five dreamed and eco seven development, well and which will be followed by further development and exploration wells.
One rig in Genesis 87, currently drilling the first wells there.
One rig and Jonathan 94, one, bringing blood in Asia and another one in Odeon debating in Ecuador.
As we announced these base of activity will continue nonstop over and into 2023 with our self funded work program.
We're planning to drill 50 to 55 wells with approximately 10 to 15 exploration and appraisal wells for a total capex program of $200 million to $220 million with 35% of these capex allocated to exploration at <unk>.
Dissipated previously all of our environmental licenses for 2023 program have been obtained.
As always our work program is flexible and can be adjusted up or down based on drilling results in oil prices and in this particular year. It will also be depending on final outcome of the tax reform in Colombia that is currently underway.
We are estimating an annual average production between 39, 5% to 41 500 barrels per day.
Not including any production from exploration efforts, which would generate over half a billion dollars in adjusted EBITDA at $80 to $90 Brent.
After fully funding our base on growth work program, we will continue strengthening our balance sheet as well as returning value to our shareholders, we announced yesterday, our intention to deliver approximately 40% to 50% lower free cash flow after taxes back to shareholders.
Combination of our dividends share buybacks or Brian look for extraordinary dividends.
We continue to make progress towards our aggressive emission reduction plan to reduce scope, one and two greenhouse gas emissions intensity by 35% to 40% in 2025 or sooner.
We expect to have our solar park fully operational before the end of this quarter, which complements the connection to the national electric grid that was fully completed in July .
Additional investments were included in our 2023 work program to connect more geopolitical operated blocks to the national grid, improving the reliability of our source of energy and helping us reduce further our emissions and environmental footprint.
We look forward to reporting the results of these activities in the upcoming quarters and we thank you for your participation. We also please invite you to come down and visit us in our operations and now also to visit our new and updated website, which was launched in October this year.
And now we would be happy to answer any questions.
Thank you.
Yes.
Thank you.
To ask a question. Please press Star then one on your telephone keypad.
Yes.
We have our first question from Daniel Guardiola with BTG. Please go ahead.
Hi, good morning Andreas.
I have a couple of questions for.
For my answer.
I wanted to know if you can share with us more details on.
Do you expect the impact of their recently approved tax reform in both Chambers I know the tax the final. Thanks. This is steel in our reconciliation process, but the likelihood of <unk>, nor did they find out regarding the tax on the oil sector.
They are going to change as a very low so I wanted to maybe you can share with us some some high level numbers I saw that a year or 2023 working program. You included a very significant increase in cash taxes for 2023. So I'm wondering if you can if you can provide some color on the so that's my first question.
And my second question is also related to the 'twenty three 'twenty 'twenty three working program.
In terms of production and I wanted to maybe you can share with us more details.
On the guidance not only by country, which is already now in the filings, but also by field specifically you know between <unk> 34.
CPO five FMC, you know that most of the growth.
For 2023 will basically come from Colombia, which is expected to fully offset the declining production coming from Brazil, and Chile. So those are my two questions for timing.
Okay.
Thank you Danielle good morning.
So to your first question and as you well mentioned right. The tax reform with recently approved by Congress and is in reconciliation.
So there is still a significant uncertainties in regards to the.
The exact that lease liability of the law.
That will be instrumented by <unk> and other regulations.
In the coming weeks.
<unk> said that.
We did provide as you mentioned in our in our releases yesterday.
Our estimation in terms of the.
The potential impact of of the reform.
But it's important to highlight there is in the numbers that you see in the release, we are including both the impact of.
The non deductibility of royalties portion.
The impact of the surcharge right. The surcharge of course is going to be borrowing in that guidance because it's linked to prices.
So it goes for zero present in.
In the guidance is going to be 5% at the lower end and <unk> at the higher end and what we've done.
To be fully transparent is to include that impact fully the impact of the reform are estimated impact fully into that 2023 guidelines.
Irrespective of when when it becomes a cash impact which could be during 2023 or into early 2024.
We will continue to follow the process of reform and hopefully we'll be getting more information that we can share.
With all of you as it becomes clearer.
Yes.
Danielle This is Martin.
I'll go to your second question around to 2023 production on the breakout so we already announced our guideline again east 39 500 barrels.
<unk> thousand barrels of oil equivalent per day to 41500.
In Colombia at about a 5% increase.
When you look at the assets in Colombia, and CPO, five or expecting a 10% production increase average year to year.
China's 34, we're expecting a 2% to 5% increase.
Blood in Asia decline.
The decline.
When we move to Ecuador.
In both blocks, but equal on its backhaul, we will go from around 800 barrels of oil equivalent average that we're having in 2020 due to the order of <unk> hundred 2500.
And in Chile, and Brazil, and we're going to be expecting declining of the fields of the order of 20% all of these numbers.
Do not include any production associated to exploration that 35%.
<unk> of our Capex that Andreas mentioned.
Thank you.
Martine.
I just do a follow up on that.
Jos mentioned Martijn that these guys honestly is not including the Capex that is expected to be deployed in exploration.
<unk>.
Can you share with US what are you targeting you know with these extraordinary capex and what could be the upside the opposite scenario in order to these guidance in case Youre successful in your exploratory campaign.
Thanks.
Yes, so again like we are sitting in our guidance is about 10 to 15 exploration wells.
Our growth.
And risk mean resource is in the order of around 150 million barrels.
And that we're expecting to.
Investigating and they're also going to drill in the blocks that we have in China exploration that we call was always shallows, one 123 block 124 block on 87.
And then we're going to be also drilling in CPO five <unk>.
<unk> do Mato, we're finishing right now we're drilling an exploration well so we'll see how those results turn out in that one and in audience. They will have appraisal wells.
And at the same time also some appraisals in channels.
34.
And Andres here Danielle. So we think there is upside obviously associated with this exploration in terms of production, but as you know, we usually don't give a guidance associated to that because of the risk associated to it so it's better not to give numbers.
For us, we'd rather be a little conservative.
But the volume that we're tapping at Martin said is it's pretty significantly to $150 million or gross in Maine.
On <unk> resources.
So it is an attractive program and hopefully will provide upside to our production guidance during the year and if it does then we may revise it as we get results hopefully.
Okay.
Thank you we now have our next question from Alan <unk>.
J J mentioned from now Securities. Please go ahead, when you're ready.
Hi, Andre is there any common theme.
Thank you for taking my questions two questions. If I may 1st one as a follow up on the production side of things.
Can you give us some kind of order of magnitude how.
Much more volume can you expect from from CPO five <unk> with the resources that you already have.
Then.
So a small kind of you know.
Follow up from there.
You gave us our five year plan 2026, you indicated 10% per annum growth in production.
Assuming both your existing fields plus exploration.
With the guidance that we have for 2023.
More reliant on the exploration upside to get to those numbers don't were before.
So Alejandro Hi, Martin here I'll touch on the on the CPO five question. So.
We started the year the.
The year on the second quarter, our production with her own.
<unk> thousand 300 barrels.
Oil equivalent growth in the third quarter, we had some production going down because of blockages and.
We were at around 19000.
Today, we work around 24000.
The production that we have includes the production from the <unk> well that we announced the results.
And is producing right now.
With a with a choke.
More than 4000 barrels of oil per day of water.
The as we're speaking we're drilling the <unk> well the development oil so thats going to.
Increase our production by the end of the year and we expect that to be in.
<unk>.
Kind of how we start 2023 or.
Our next <unk> five we have one additional development oil and further exploration wells that again that production is not accounted because its exploration.
And then with respect to your comment.
Yep.
Alright.
The follow up question. Please yes, yes.
But with what you have on the development work that Youre planning for the next few months.
<unk> in the call our 30000 barrel appeal is in the 60000 barrel field.
Sorry.
Those two more wells as Martin said Theres, two more wells development wells coming one is in the cross sell and that is being drilled right now and it's going to come on stream.
Early next year and then.
Another development well planned for next year program and the volumes are in the range of what we have been.
<unk>.
We've been releasing so it's not a 60000 barrels a day field is more in the area of 30.
<unk> thousand most of they feel range.
Okay. That's clear thank you.
Okay.
Then with respect sorry.
Sorry, operator, I think Alejandro had a second question about the five year plan and how it ties in with our 2023 well program.
So as you mentioned Alejandro the five year plan has a 10% CAGR per year.
Year on that includes all the exploration activity that we're planning to do in that five year plan, which is going to be quite quite active.
It is an order of magnitude range that we gave.
More or less.
Sure.
Show what is it that we're shooting for in the in the medium and the medium term plan.
Every year, we announced our our work program.
On that more specific activity, we usually don't do.
Don't give this guidance on exploration.
We will be releasing.
Releasing the results.
Our results as we as they come in.
But I can but I can confirm that is largely in line with what is expected in that five year plan. We're announcing on what we're doing this year is pretty much what we had in mind when we were setting out that five year plan.
Thank you your.
Your next question comes from Phil Skolnick at eight capital. Please go ahead when you're ready.
Yes. Thanks, good morning, just on further onto that a five year plan in light of the Columbia.
<unk>.
Yeah.
And then making you think a little bit differently about it.
With respect to trying to maybe push capital outside a little bit more of Columbia, or maybe even diversifying more to to transact upside.
Hi, Phil Thanks, very much.
That's a very good question.
Try to include as much detail as we can in the release with respect to the imminent impact of these tax reform.
Which as you can see is quite significant.
And the broadly the numbers may be a little conservative, but we'd rather be that way and not the other way.
How it impacts the five year plan is still to be seen.
We're still working on.
Filtering through.
This new tax reform our entire portfolio.
But again, we were going to see over the course of the year and according to the results, whether we need to adjust our investments.
Depending on the final impact as you know also.
The impact of the reform is largely dependent on oil prices. So what oil prices in the range of $60 is much less significant than it is at current prices.
So it's hard to predict today, how much he is going to impact our five year plan.
But with respect to your point about diversification that is something that we've always been in the DNA of the company and that is something that we've always.
We strive for which is to have a diversified asset base in different basins and in different countries. So that is something that we'll continue to explore and it's something that we obviously continue to have in the center of our business model to continue building a diversified portfolio of <unk>.
Throughout different basins and countries in the region.
Okay. Thanks, just one follow up question with.
With respect to your exploration program.
Upside that it could provide to your guidance and how soon could something like that possibly happen.
But right now we are actively drilling.
405 exploration wells at this time.
That will continue in most places almost back to work. So I don't know Martin if you want to <unk> on which ones they are but fulfill these.
<unk> out of the eight rigs that we have drilling.
We're drilling about half of those are drilling exploration wells in channels exploration asset that we call. It we have blocked generous 87, we're drilling right now there was total early our first exploration well on that block and we expect by the last part of November to reached total depth.
And as all of the exploration wells that we drill we have set up contracts and we're ready to complete.
Put the wells on.
Early production testing.
So that production if the wells are successful will be coming in <unk>.
By December .
When we move to plant in Asia in Latin issue into modulating, we're drilling right now really value level.
So.
About 30 more days.
To get to TD and complete that well.
When we move to Orient the.
In April or in the stakeholder look we're testing right now and completing and drilling completion tests on the partially well.
We announce.
We reached TD and they were at the same time the rate you say drilling the <unk> well.
Well so.
In that one in the order of around 30 to 40 more days and non operated.
<unk>.
We're testing the malware in China's 94, so you can see that plenty of activity and exploration as we speak.
We're keeping all of these rigs as we move into the first half of next year.
And the <unk>.
The mix is further have similar okay. So about.
Half of the wells will be drilling in the first half of the year will be.
From a rig perspective will be exploration wells they take longer so it doesn't mean half of the wells, but the rigs will be drilling exploration wells.
Great. Thank you.
Okay.
Thank you.
We now have a question from Daniel <unk> of Canaccord. Please go ahead, when you're ready.
Good morning, and thanks for taking my questions.
So the first question, it's really targeting top explorer.
So right now Bob and accumulate in I don't know if you gave a million.
So in order to.
The lower end of your guidance for the year, you would need to deploy $88 million in the fourth quarter.
So.
It seems to have integrated compare compared to historical standards. So can you give us a color on how you can deploy and Scott.
Hi, Ron This is Martin again.
So the guideline that we have like you said he say from 200 million to 220 net.
And then the first nine months was $115 million in October .
With that we're ready finish we have spent $25 million.
And this is mainly due to the more activity.
If we look back a year ago, we had only eight rigs running we have 13 now so we expect to be on the on the lower range of that 200 to 220, but we're confident that we're going to be in around 200 to 220 on the low end low range.
Perfect. Thank you.
And.
So this is probably for you Mark again.
So buying bonds.
<unk> in Colombia during the third quarter and you also may have shown some locations during October .
Can you give some color on and which will expand.
Where the coffee so please locate.
Yes, absolutely Roman so I want to start by saying that as we speak we have no blockages in any of our operations.
In and all the production is normalized now we are seeing a change in in the context, if we look back in.
In 2016 as one national wide there was the least.
The amount of blockages around 270, and we look at the full year that finish into 2021, there were like 770, so the number of blockages have been increasing.
In Colombia for the past eight years, we E channels, we had not suffer.
Any for several years.
The first one that we suffered as Geo park, where in 2020 in there too Marshall.
The blockages that we have most of them were related to illegal crops.
But lately we have seen.
Some op rise in request, okay. So in the third quarter.
This year, we had about 38 days of blood Tanisha production down.
10 days of production down in CPO five so that on on production. It means around 1100 to 200 barrels of oil per day average that we had shut in.
In the fourth quarter, we had production shutting in channels 34 about 200 to 250 barrels of oil per day.
Average four for the quarter that will that we're running right now that's what we're expecting.
And then.
Again, we continue having very constructive dialogue with our neighbors within national and the regional authorities Inca scenario for the Santos request.
And.
Many of these requests come in considering that we have three of the top 10 fields.
In Colombia.
<unk> and <unk>.
Indigo, sometimes wonder general National request, they go to the B assets.
So they're not things that are related directly to our company.
This last point is important this is something that we've seen generalized I mean, when we had locate more recently and we've also seen most companies will be.
Stock for quite some time.
Perfect. Thank you and maybe the last question is regarding production costs. So we saw that production costs were almost 16% down quarter over quarter.
Just wanted to understand.
<unk> alright.
Depreciation.
Taking going forward.
Thank you Ron and good morning.
So for 2022.
In terms of.
Operating cost.
We expect to be as well in the lower <unk>.
The edge of that range.
Targeting 8% to $8 $5 per Boe.
As a result of the strong effort of our team in terms of cost efficiency.
And the high inflation context, and also some <unk>.
Impact of the local currency devaluations.
What you see particularly in the third quarter, if not it's transitory right.
Late to the impact of lower sales in blood in Asia.
Which are the combination of <unk>.
And Martin mentioned, Venezuela, Latin as you'll remember that in Asia sales will vary.
According to the lower.
Loading programs out of the Ecuadorian.
Right, we felt that in each of barrel through at Butler, although the steep one so you will see that from time to time, you get inventory accumulation and then the sales and given that the higher.
Opex per Boe asset.
That can change some fluctuation in the overall.
Looking into 2023.
We will continue our efforts in terms of keeping our costs down and efficiencies.
And we expect to.
Half a year of between eight and $9 per release for 2023, that's included in our guidance.
Perfect. Thank you very much.
Okay.
Okay.
Thank you we now have a next question from.
Stefan <unk> from <unk> advisors.
Good morning.
There is a lot of drilling and appraisal activities aimed at crude oil in 2023, and a success case, where would you see the asset base and that Codell.
Well I E 2003, and what production and how much for that.
Okay.
Hi, Stefan on this is really so.
<unk>, we had great results in 2022.
We started the year with no production.
So far we had three discoveries in the political will look and a gross production now around 3000 amount of oil per day.
So in the other log this best of luck.
As <unk> mentioned before we are in the completion process of the particularly well.
Now the world is under <unk>, so going to your question, which is the plan and activity for 2023 in the political in the political blog, we plan to release three appraisal wells.
We those wells, we will define volume size and structure of the recovery.
2022.
In the peso in the spec overlook offset partially will.
We will read out in dementia and also the second exploration well.
We choose the correct cut hours. So then subject to the results of those wells.
We will decide with our partner if we will bring more operational operational waste in the block. This.
This year.
Yes, just to follow up on <unk>.
We keep learning from from these wells were very encourage shown on how things are turning in Ecuador.
Now we're working on optimizing the cost under the bid round coming up call inter campus to that we will be participating as well.
Okay.
Thank you.
The next question from Miguel Ospina.
Some come with great asking could you give us some details on what you plan to gain with the excess cash you are not planning to the STB as dividends buybacks. Thanks.
Thank you Miguel good morning, Thank you for your question.
As we mentioned in.
In our release yesterday.
We'll be continuing.
Continuing to increase allocation to shareholder returns.
By allocating between 40, and 50% of our free cash flows over the next year.
To your particular point.
On the excess now after we've done of course or we need to deal with fund our assets and then what we've announced in terms of shareholder return will allow for a combination of cash build and also opportunistic further deleverage and as mentioned already and we're very comfortable leverage in terms.
Net debt.
<unk> eight <unk>, we could consider further leverage.
In 2023.
Yes.
I would like to hand, it back to Oscar.
Thanks, Dan James Oklahoma system.
Thanks.
Thank you everybody for your continued interest and support of Geo Park.
Always available to answer any questions that you may have so please call us anytime for more information. Thank you and have a good day.
Thank you for joining today's call.
You may now disconnect your lines and have a lovely day.
Okay.