GeoPark Limited Q1 2023 Earnings Call
<unk> by 6% compared to the first quarter last year.
Every dollar invested generated $2 50 in adjusted EBITDA, which show both the efficiency of our capital investments on the profitability of our assets.
Over the past 12 months, we have generated a 62% return on capital employed.
Bottom line in the quarter, we generated $26 million of net profit.
<unk> 45 per share.
During this quarter.
Following our debt reduction of $275 million during the last two years, our interest payments in the quarter were down by 30% to $13 5 million.
We ended the quarter with $145 million of cash in hand, and a net.
Net leverage ratio of just <unk> seven times.
We continue to deliver on our increased program to return more value to shareholders.
Share buybacks increased by 142% to $7 $5 million in cash dividends increased by 55% to seven 5 million <unk>.
Approximately a 5% dividend yield.
On April 26, <unk> published its 2022 speed ESG report.
From which I would highlight our 34% carbon intensity reduction, which is a big step towards meeting our near and mid term goals.
As well as the positive impact that we were able to have one in 240000 people that benefited from the company's social and environmental programs in 2022.
Looking forward, we're executing the multi year drilling program in our core and surrounding blocks in the channel spacing.
For the remainder of 2023, we're targeting the drilling of six to eight exploration wells.
Including exploration prospects in the generalist $1 23, 124 on CPO five blocks. In addition to continue developing our core asset base.
We look forward to reporting results from these activities in the upcoming quarters.
Thank you and we will be happy to answer your questions.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad.
If for any reason you would like to withdraw your question. It is thoughtful it might take.
As a reminder, if you will use the speakerphone. Please pick up your handset before asking your question.
Our first question comes from the line of Stefan.
Okay.
Your line is now open. Please go ahead.
Hi, guys. Thanks for taking my questions.
Q.
First one is around <unk>.
CPO five ease.
The restart of <unk>.
The two words is now being pushed back to July .
And I was wondering any particular context.
Maybe just obviously the question, but my question is.
There is not any stronger stance being taken by the government and whether you.
That's the July .
There could be some further delays compared to the new date of July . This is my first question.
One particular, one is around the Capex reduction.
Wondering what activities have been taken out from the program.
Comment to that is that exploration is that development or otherwise and lastly, it's an accounting question surround the royalty and the economical right signatory economic right.
In Q1, I see that $1 billion does that use dropped a lot compared to.
I think Q1, 2022 of course, or possibly a bit lower but it doesn't seem to justify such a big drops I was wondering what was behind the drop and whether there would be a catch up at some point or not thank you.
Hi, good.
Good morning, and thank you for your questions.
The question on CPO five obviously this is a very important element of the business for US is one of the most important blocks for geoponic.
So.
The main reason for the delay is.
Typical delays in executing the operations or the construction of that were needed. So effectively the reason why those two wells are shut in because the A&H has requested the operator.
After a long time have been producing under temporary facilities temporary testing facilities to build definitive facilities with which which require.
Some civil works and facilities construction.
So when the operator gave us the may the may deadline to put those two wells back online.
The actual work progress was barely zero it hadn't been started so this is why we gave.
The information before in March today, the advance in the works is up in about 60% to 65%.
Martin rather was there.
Just a couple of weeks ago.
We're seeing the works and making sure that everything was advancing so the works are being completed today.
Dimension is to be end of June or July by the operator.
That has been set to us with a 65% advance in the operations are in the facility. So the degree of confidence we have on this is higher than the one we would have had on the may that we gave before so that's that's the reason there is no new government requirements already and reasonable.
Request or anything like that that is working here is really just the typical that sometimes it happens theres delays when executing some of these people work in the facilities that's all.
So we hope we hope we can meet that date in July .
And we are working on assisting the operator as much as we can.
202 in Italy.
This year already we spent time with the management team of <unk> as we always do and as I said Martin visited the operation on 18 constant daily conversations with the <unk> to make sure that that all of these activities are completed.
As soon as possible.
Obviously as I said at the beginning this is a major production.
For our company. It is also part of the future and our upside so we dedicate as much time and effort.
We possibly can.
And then I will let.
Well to answer the other two points that you mentioned Stefan Thank you.
Morning, Stephane and thank you for your question.
As you mentioned, we have reduced our capex guidance for 2023, and $20 million shifting it to $180 million to $200 million.
Total from 200 to 220 before.
This is a product of <unk>.
Constant looking for cost efficiencies and streamlining of our projects.
In particular, there is a combination here of dose of those two factors cost efficiencies and adjustment to project.
About half.
<unk> from.
Cost savings and the execution of seismic.
That will be happening in the blocks Genoese 86 and one.
104 that are to the east of dentistry for it.
And the results from cost savings in the contracting process of this activity.
About 25% also comes from savings in the drilling and completion in Putumayo.
And in some infrastructure projects to be carried out in Genesee four.
And the remaining 25%.
It comes from and adjusting to the drilling schedule.
That is getting pushed out and mainly in.
Ecuador and to a lesser extent in CPO five for.
For the quarter, particularly originally our original guidance included two to four wells in the first half of the year and our current guidance is including one to two wells in the second half.
And then moving onto your question on.
Royalties as you well mentioned.
The royalties are lower in the first quarter.
And it has the impact of prices that you mentioned so at lower prices.
You get a lower.
The royalty component and also.
From the shifting of some of the royalties that are paid in cash to being paid in kind.
Yes.
Hmm.
<unk>.
The second impact net net it doesn't have.
And EBITDA adjustment to it right, but you will see us royalties that shifted from cash to in kind is that the revenue line the topline will drop but the production and operation cost where the royalties are included we.
We will drop for a similar amount.
Going forward.
<unk>.
The.
Definition of our royalties get paid in cash or in kind is the division is jointly with the regulator and we would expect to still have more royalties shifted to in-kind during the year. So you can see a continuation of this.
In our numbers going forward.
This is great and very clear. Thank you very much for picking my questions.
Thank you Stefan Stefan.
Thank you our next call.
Comes from the line of Alex.
All Securities. Your line is open. Please go ahead.
Yes. Good morning, guys. Thank you very much for taking my questions just to follow up on the CPO five situations Andre. So so just to be clear you don't cut people seconded into the R&D team.
Marty.
<unk> seen kind of overseeing things.
Ongoing through the field is that the situation.
Yes.
We do have people seconded in the operations and that's.
That's how we maintain the flow flow of communications with our field operations on a daily basis, but on top of that.
We have Martina and his team and our asset managers dedicated to CPO five that work all the time.
Tenuously supporting and providing any help.
May be required by the operator, but actively we cannot execute some of these activities ourselves. There is an operator that is responsible for these for these works.
Okay.
To be clear.
That was supposed to take two months is taking like six months ago, yes.
That's absolutely right.
Okay.
Okay.
And then the second question is more on the exploration front.
When we look at your exploration charges over the past nine.
Nine months it has been almost $40 million so trying to understand the plan going forward are you changing the approach are you having some lessons Jan from from those kind of.
Let's say less successful wells that <unk> seen over the past few months.
Okay.
Hello, Alejandro good morning, so over here so.
Just to be more context regarding your question, we are having our exploration plan to range between 13% to 15 wells this year.
In this first part of this year, finishing drilling seven wells.
For unsuccessful and three whereas with positive results.
One is the <unk> 34 that we already announced and commenced in the last call the Willis from production.
The other two wells had under evaluation and testing in the journals 87 block.
The total ROI that is <unk> in the <unk> formation with more than 200 barrels of oil per day without water.
The other worry this herself for sell X one.
We are developing the workover plan to be able to test the light oil that showed in the initial test.
In both wells working work plans and volumes for a possible future future.
The weight of implants.
For the rest of the year, we have at least six to eight more wells exploration, whether we're going to drill.
Want to do we're seeing channels $1 20 for two wells in general of $1 23.
Both blocks to put your Africa contests are located to the west enabler of channel 34 block.
So in CPO five we're going to be one to one to two wells one of those you know that we will be the first well in the block targeting the continuation of the danaher kind of geological trend.
We also want is we want to do whilst <unk> 34.
And we also we haven't under evaluation with one well inequality in the political blocs.
And we are optimistic of our plan and we sure I'm sure that we gave you most.
In the next operational update.
To complement what sue resist.
Alejandro to your point of course every well that we drill provides new information that is factored into our model to recalibrate the new prospect EVP of the area. So the continues and there is also new three D seismic that comes in.
Almost every three or four or five months, because we are registering seismic in many places. So all of these new information is factored into the model to recalibrate.
<unk>, new prospective areas or remap again exiting prospectively the areas, where we had prospects before so yes. The campaign on the second half of the year does factor in the results of the first half of the year.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes from the lineup.
Cobalt Alan Youre.
Your line is now open. Please go ahead.
Hi, Thanks for taking my question. This is identical to imbalance I had a couple of questions. If we may go one by one that would degrade.
First then it has to do with the persistently wider differentials differentials for Colombian could.
Despite expectations for our compression and related they started comprehend in late March April , but I'd like to understand better what is driving this and where do you see differentials headings are we under.
They're like a new normal quote unquote situation or.
And just to get a sense from you guys on what are you observing.
Okay.
Thank you Liana good morning, as you well mentioned.
Conor deflation has been volatile and has been wider especially during the first quarter.
It's now trading about $6 below Brent, averaging seven and a half year to date.
Versus five five for the full year of 2022 and during the quarter, we even saw a loss of $9.
So your point is absolutely right, we see we've seen volatile and wide differentials.
Drivers behind this are a few but I would highlight one.
Increased crude out of Venezuela come in.
Coming to compete with our.
Latonia rate, specifically and the sustained offer.
Affluence of Russian.
Barrels into the market at discounted at discounted prices.
Additionally, we've seen increased flows of Canadian crudes into the U S Gulf Coast market, which also affected.
<unk>.
The competitiveness has not gone yet.
But if you look forward and you've already seen it in the in the compression thus far of the differentials are key factor going forward is the impact of the Chinese reopening in the demand for our crude and we expect that to continue easing the differentials as the Chinese demand picks up.
And and.
The appetite for accrued increases.
We would expect a recovery in the differentials for the remainder of the year.
Closer to our long term historical averages about four to $5 versus Brent.
Perfect.
Very clear.
Just moving onto.
Our process of a relinquishing of exploration licenses in Putumayo I believe that that headlines came out.
Two days ago. So he can comment on this process and do you have like an estimate of impairment loss that you booked in connection with any rationale behind it as well. Thank you.
Hi, Good morning, Oriana address here, yes. Thank you I'm not sure why these headlines are coming out right now, but just to be clear.
When we acquired <unk>.
End of 2019 early 2020.
We picked up about 12 blocks in the Putumayo basin.
And from these blocks we started between 2020 in 2021, we started some.
Different processes for relinquishment of some of these areas.
Because they are in either less prospective areas or more difficult access areas or more sensitive environmentally area, So which we're in places where we have no intention to real intentions to go. So we we started the relinquishment of all these blocks a longtime ago on some of them.
Them have been completed I think out of the six that we we're relinquishing two of them have already been completed and those four more.
To be completed.
There is no impairment associated to those because we have not allocated any capital to any of these blocks in the in the past. So it's just following the normal course of any portfolio management.
Of the company.
That's all it is.
Perfect Thats, great that would be all from my end. Thank you.
Okay. Thanks very much.
Yes.
Thank you. Our next question comes from the line of.
Rafi.
I caught your line is now open. Please go ahead.
And good morning.
Thanks for taking my question guys.
A follow up.
On the royalties you mentioned that.
You are changing the amount of royalties you're paying kind just wanted to.
Clarity around that is that affecting the tax rate you are paying with the new tax reform.
Thank you Ron good morning.
And as I mentioned, yes, we're shifting those those royalties in conjunction as the process that we do.
In coordination with the anh with the operator, but as you well mentioned right as detached reform.
Has different treatment for royalties paid in cash and relative painting kind in terms of the deductibility.
Moving royalties to be paid in kind would have a positive impact on our income tax numbers.
Awesome, Thanks, and I have another one regarding the.
The issues you are seeing in Chile.
<unk>.
You are already considering a.
Possible off taker or are you considering other words and we have any clarity on when are you signing a new agreement.
In regard to Chile, so in the first quarter, we've had commercial headwinds in the operation.
We've been in negotiations with the in App.
Our off taker.
It has led to the shutting of crude production in the in our asset about 400 barrels a day remain shut in and the asset is currently producing gas and condensate.
We continue to work in different alternatives commercial tentative for the asset not only circumscribed too.
Two three.
<unk>.
<unk>.
And we will continue to work on those and.
Report on them as they come forward in terms of expectations.
It is uncertain when we will be able to.
Renew our contract or finalized our commercial alternatives and that's why we've taken.
The approach of including this production is being shut in in our guidance.
Okay. Thank you very much for the answers.
Thank you. Our next question comes from the line of Phil.
Goldman.
Capital. Your line is now open. Please go ahead.
Yeah. Thanks. Good morning, just wanted to follow up just on the Ecuador deferral was there anything specific to cause that.
Okay.
Good morning, and thank you for the question this is Martin.
The specifics are basically out of the comment from.
Data on <unk> in it.
Is that from a.
Exploration perspective, we had a total of exploration and development three to four wells for the year in the first half an hour moving to one to two wells in the second half.
This is based also on our Capex adjustment.
And as you know we had an eight well commitment in those two blocks.
We have already drilled five wells. So we're looking at the performance of the wells.
Water cut decline rate.
We also finished the seismic so we decided to move further activity the second half of the year. So that we get more information from the sub surface and we also aligning with our capex for the rest of the year.
Okay.
It kind of surprises then or is it just more just.
We just want to look at the data.
Yes.
Progress based on that.
Yeah, No no no big surprises basically looking at performance and continue evaluating how the oil can behave.
Okay. Thanks, that's it for me.
Okay.
Thank you.
Thank you.
So our next question is.
Question.
And it's from the line of Andrew Deluca of Keybanc.
And at jazz.
Brian John Paul drilling can you please let us know.
How many additional.
Oh Wow do you plan to trail.
Is the Capex.
With the right Paul.
Wow.
<unk> cost increased in Q1.
Please specify what drives the increase and where you see this in 2023.
Okay.
Thank you Andrew I will take the horizontal well question on led to Veronica Zhang over the lifting cost, but absolutely we're really happy and excited about the first horizontal wells that we're drilling incentive 30 for this well is targeting to the middle formation you have.
1500 feet in the horizontal section.
Its performing according to plan and slightly above it right now the world is producing 3000 barrels of oil per day with no water on a very low drawdown.
Lisa formation with a very active.
I prefer this was one of the opportunities that we saw to optimize the recovery factor of that formation. The cost of that world was around $10 million within budget and within time as Andres mentioned.
Of course that after we're number one.
We learn from it.
We're looking forward to drilling the wells cheaper.
Starting on well number two and so forth.
We are expecting to drill one minimum to three wells in the remaining of the year <unk> 34.
Also like Andres mentioned, we will spud well number two.
The month of June .
From a cost perspective again, we expect can be obviously below the $10 million.
For the for the next wells.
And thank you maintain moving on Andrew to your question in terms of Opex.
As always our team worked very diligently in our cost management working to keep our cost.
Tight as tight as possible and this is reflected in the fact that with Cape Cod.
Cost.
Per Boe flat at $8 per BOE consolidated year on year in 2022, and the first quarter of 2023, we've seen higher.
Opex about $10 one per Boe on a consolidated basis.
This came.
From an increase in Colombia.
<unk> registered a total of $9 six per Boe.
And also in Ecuador, while it was in line for other assets, but the main factors pushing our higher opex in Colombia.
Were transitory in nature, we accelerated well service activity I was already planned that was executed.
In the quarter and we also faced higher electricity costs, especially in <unk>, but those were a function of weather factors.
<unk>.
Being this factors transitory, we expect our operating cost to drop from this level of the first quarter expecting eight five to nine five.
On a consolidated basis for 2023 with Colombia about seven five to $8.
Okay.
Wonderful. Thank you as there are no additional questions at this time I will hand, the conference back high Vol. A.
Okay.
Jamie Fox.
Thanks.
Thank you everybody for your interest in and support of Geopolitics were always available to answer any questions. You may have we encourage you to please visit us and our operations and call us anytime for more information. Thank you and have a good day.
Ladies and gentlemen, this concludes chiquita popcorn.
2020 freight results conference call have a great go ahead, you may now disconnect.
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[music].
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