GeoPark Ltd (GPRK) Q4 2024 Earnings Call Transcript

Good morning and welcome to the Geopark Limited Conference Call following the results announcement for the fourth quarter ended December 31st, 2024. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at this time, please press star 1 on your telephone keypad. If you would like to withdraw your question, please press star followed by 2. If you do not have a copy of the press release, it is available at the Invest With Us section on the company's corporate website at www.geo-park.com. A replay of today's call may be accessed through the webcast in the Invest With Us section of the Geopark 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 fact and are subject to risks and uncertainties that could cause 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 1995. These risks include a variety of factors, including competitive developments and risk factors listed from time to time in the company's SEC reports and public releases. Those lists 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 were prepared in accordance with the IFRS and are stated in US dollars unless otherwise noted. reserves figures correspond to PRMS standards. On the pool today, Geopark is Andres Ocampo, Chief Executive Officer, Jamie Caballero, Chief Financial Officer, Martin Tirado, Chief Operating Officer, Rodrigo Dallefiore, Chief Exploration and Development Officer, and Maria Catalina Escobar, Shareholder Value and Capital Markets Director. And now, I'll turn the call over to Mr. Andres Ocampo. Mr. Ocampo, you may begin. Good morning, and welcome to the Geopark Limited.

Good morning everyone and thank you for joining us to review our fourth quarter and full year 2024 operational and financial results. 2024 was a year of significant achievements for Geopark despite some operational challenges and lower oil price environment. We were able to sustain our cash generation capacity, made a game-changing acquisition in Baca Muerta that extended our reserves lives significantly, increased production in our newly acquired assets, hit a new transformational discovery in our first exploration effort in Baca Muerta, and at the same time, we delivered the highest annual shareholder cash return in the company's history. Geopark's total oil and gas production for 2024 averaged almost 34,000 bars a day equivalent which is seven percent less than 2023 as a result of temporary production disruptions and natural decline of our main fields in colombia nevertheless our acquired unconventional hydrocarbon blocks in vaca muerta delivered an average production of over 15 000 bars a day gross in the fourth quarter of 2024 which is 19 percent higher than the third quarter 2024 and almost 50% higher than when we announced the transaction, which highlights the quality of the assets and impressive operating skills of our partner, Phoenix. Our Vaca Muerta assets delivered approximately $25 million of EBITDA net to Geopark in the fourth quarter and approximately $100 million net on a full year on a pro forma basis. Importantly, during the fourth quarter of last year, we put on production our first exploration path in the Confluencia block in the province of Rio Negro, with three wells producing approximately 4,500 barrels a day. This discovery is important, not only because it's the first step towards potentially de-risking the approximately 90 million barrels of net working interest-certified contingent resources in the confluencia blocks but also as it represents a breakthrough in the Baca Muerta Basin. These are the first wells to flow from Baca Muerta in Rio Negro Province and two out of the three wells ranked in the top eight producing wells in the entire basin over the last 90 days. This represents a new paradigm being broken by Phoenix and Geopark in the basin. We look forward to drilling and completing our second exploration padding Confluencia Sur block, which is expected in the second half of 2025. The production volumes and EBITDA figures associated with Vaca Muerta are not yet reflected in our consolidated production and financial figures for 2024, but the transaction is going through the customary regulatory approval process with the respective provincial governments. The financial impact of the timing of these approvals will be neutral as the transaction became effective on July 1st, 2024. Reserves at ERN 2024 reflect the upgrade and recalibration of our asset base through the acquisition in Argentina, as well as the adjustments to the Colombian portfolio. Proforma 2P reserves reached to nearly over 160 million barrels, driven by the addition of 74.6 million barrels from the Vaca Muerta assets, 41% year-on-year increase. This growth extended our reserve life index to 13 years on a 2P basis, while 1P reserves of 102 million barrels extended our 1P Reserve Life Index to 8.2 years, reinforcing our long-term value creation. Full year 2024 adjusted a bid that reached $416 million, representing approximately 8% decrease compared to 2023, following lower production and one-off financial expenses in the fourth quarter 2024, which were associated to the offer for upstream Repsol assets in Colombia and the drawdown of a prepaid facility for the Vaca Muerta acquisition. We invested $191 million in capital expenditures during 2024, maintaining our strong capital efficiency ratio of 2.2 times adjusted EBITDA. Net income for the year stood at $96.4 million, 13 lower than 2023, mainly due to lower production, lower revenues and higher effective tax rate. However, operating profit for the year remains solid, underscoring our robust cash generation capacity and disciplined financial management amidst lower revenues. We concluded the year with $276.8 million in cash, including a $152 million dollar withdrawal of a prepayment facility to pay down the vaca-morta acquisition. Our net leverage of 0.9 times remains well below our declared long-term target of under one and a half times adjusted EBITDA, and we have no material debt commitments due until 2030, enhancing our financial flexibility and reducing significantly our refinancing risk. Our financial strength allowed us to continue rewarding our shareholders with almost $74 million through dividends and buybacks in 2024, a record annual shareholder cash return of around 14% yield. During the year, we completed a Dutch Auction Tender that reduced our standing shares by 8% to $51.2 million and underscored our commitment to capital discipline and shareholder value. Also, we have just declared a quarterly cash dividend of almost $0.15 per share payable on March 31st, reinforcing the continuation of our long-term value return proposition. Our commitment to sustainability is deeply embedded in our speed value system, always guiding our operations and our decisions. We are proud to be included in the S&P Sustainability Yearbook for the first time and to be recognized as the industry mover in the oil and gas upstream and the integrated sector. We also maintain our AA rating in the MSCI index for the second consecutive year, underscoring our position as global sustainability leader. These achievements reflect our dedication to operating responsibly and creating value for all stakeholders. looking ahead to 2025 our focus remains on maximizing the potential of our expanded asset base in Colombia we expect continued progress in our water flooding project as well as our pilot project for polymer flooding in the Janos 34 block that will enhance our recovery and field productivity in both the Janos 34 and CP05 blocks we will continue optimizing production and efficiency and in the Putumaggio Basin and other assets, we will advance our exploration program. In Vaca Muerta, we continue the development at the Marta Mora Norte block with the recent completion of the Pad 9 and the current drilling of Pad 12. Following this, the rig will move to Confluencia Sur block to drill our second exploration pad as mentioned before. Our partner Phoenix has already initiated the works to bring the second drilling rig to the area by early 2026 as agreed in our business plan. This will be a critical element to growing our current production base to a gross plateau in Matamora of approximately 40,000 bars a day. We are committed to maintaining our strong balance sheet, executing disciplined capital allocation, and evaluating new growth opportunities that enhance scale and long-term value. Our goal remains simple, to deliver more energy, more value and more prosperity for all of our stakeholders. We look forward to reporting on our progress throughout the year and we will be happy to answer any questions you may have. Thank you.

If you'd like to ask a question on today's call, please press star followed by one on your telephone keypad or submit them via the webcast. We'll start with some written questions from Daniel Guardiniola from BTB Pactual. Can you provide details on the $152 million USD recorded as customer advanced payment in the cash flow statements? And what is the expectation on this item for the upcoming quarter?

Hi, good morning, everybody. Thanks, Daniel, for your question. This is Jaime Carallero speaking. With regards to what you saw in our books as customer advance payment, this is actually related to the withdrawal that we made of BITOL's committed line back in 4Q. Essentially what we did is we wanted to make sure that we were ready for funding the closing of the Argentina transaction and the agreement that we had with BITOL had some amounts committed to a certain time frame. We wanted to make sure that within the 2024 period we could make use of those proceeds and we drew that line. From an accounting standpoint, it is characterized as a customer advance payment because essentially it's a prepayment of oil proceeds. We drew $152 million. The story has developed since then. Given the successful bond placement that we had in January, we actually have decided to repay a large part of that line to Vitol, and now the balance of that has been reduced to about $20 million. So going forward, what you're going to see in our balances in that category of customer advance payment is probably going to be something in that arena of $20 million. From a debt standpoint, obviously what we did with the refinancing substitutes the debt, so that the net effect is is minimal and what you should expect to see going forward is a gross debt that it's in the area of a six hundred and seventy million dollars which is the five hundred and fifty million dollars from the bond plus from a new bond plus a hundred million dollars from the outstanding a prior bond and these twenty million dollars so that's kind of the overall picture that you should expect. Thank you.

The next question reads, why is the closing of the acquisition in Argentina taking longer than expected? What is the pushback from the regulatory entities? And is there any risk of not receiving the required clearance? And do you expect to finally reach the closing?

Hi, good morning. Andres here. Thank you for your question, Daniel. There's no specific pushback on on on the closing there's actually no specific requirements or anything that is you know specifically delaying that they just going through normal course with the with the involved regular regulatory bodies and we are in constant communications with all the parties especially through our partner Phoenix who is the operator so who is the one taking the lead on managing the closing. So I think it responds to normal delays on approvals like this. We've seen precedent transactions closing much faster than this. And we also, unfortunately, have seen other transactions closing with more delays than this. So it's hard for us to give any additional specific guidance. I know we were expecting it by the end of the year, and it didn't happen. We keep pushing, and we are trying to get this to the fastest possible closing. But again, I think it would be difficult on our side to give any specific guidance on that end. Just as a reminder, there's no impact on our financial or on the economics of the transaction as a result of these delays because the effective date was fixed as July 1st last year. But obviously, the fact that we haven't closed, it does not allow us to report our consolidated production or consolidated numbers as they should. So, again, I think hopefully we'll get it to a closing fast, but it's somewhat beyond our hands and beyond our control, unfortunately.

The next question reads, What net transportation capacity do you have in the Duplicar project?

And what is the expected trajectory of the production of the battery and water assets in 2025 good morning daniel this is martin terrado um so the current capacity that we have and i'll talk all gross numbers for for simplicity as of february it's around 6 800 barrels of oil per day the duplicar project is coming on stream in march and with that we will get to 19 000 barrels of oil per day of a gross production that we can handle through the Duplicar. And so what we're doing and we've been sharing with you in the past is that the difference between the current production and the capacity that we had through February, twofold. First, there's capacity available from third parties. So with Phoenix, we look into those. Obviously, Phoenix is the one doing most of that work. So we can allocate most of the remaining production that we have in in the field through that spare capacity from others and there's around 10 percent that goes through trucks okay so that's a from a perspective of allocated capacity when we look at our production the production as andres mentioned is in the order of 15 000 barrels per day gross and with one rig we continue on our plan to reach 20 000 barrels per day gross by middle of next year and then also as Andes mentioned we are going to be getting a second rig early 2026 towards our 40 000 barrels per day gross so what we have is full coverage of our production through all of 2025 and through the middle of 2026 Right now, from a commercial perspective, we're working with Phoenix to lock the next 20,000 barrels, which is part of what we're working right now. So I think that's it from that question.

The next question reads, at which price of Brent would you consider to revise downward the expected CapEx to deploy in Vachamueta?

Thanks, Daniel, for your question. So, I think, you know, the way that we think about our capital allocation, you know, and actually beyond Baca Muerta is following some fundamental principles. Our first fundamental principle is that our capital allocation is tested at $60 per barrel. So that way we can ensure that our projects are prioritized appropriately, and more importantly, that we are actually remaining resilient to oil price volatility. Exactly what we want to avoid is having to react to temporary movements in price and instill uncertainty to our work program. So we are very intentional about avoiding that. And the first way to do it is actually, in our planning process, testing projects at a much lower price tag. In our case, it's $60 per barrel, where we kind of draw a strong red line in terms of ensuring profitability. Furthermore, a second element to this is, of course, we have a mature hedging program in the company that is designed particularly to underpin the continuity of the CAPEX program for at least a 12-month period. So the way that that hedging program has evolved is we make sure that we are covering a forward production curve that is sufficient to ensure the revenues and the net setbacks associated to funding our debt and particularly funding the CAPEX that we have committed to. So that also gives us a tremendous confidence around the ability to keep the oxygen line to our CAPEX for at least 12 months. So I think that's a second and important criteria. In that line, we actually have about 70% of the next 12 months of production hedged. We have already secured floors of $68, $69 per barrel for that curve, so that actually gives us a lot of forward-looking stability in terms of the revenues that we can expect for the next 12 months. So all this to say that given these protections that we have in place, we would require a very sharp and prolonged drop in all prices for us to change our plans. Our plans are unchanged. We're not reviewing them. We're not intending to adjust them in the current price environment given these principles that I mentioned. Thank you.

Daniel's final question reads, how many drilling locations is the reserves report of the Baca Muerta assets considering?

Thank you Daniel, this is Rodrigo, very important question you you are doing because 46% today of our 2p reserves are coming from Baca Muerta, representing 74 million barrels as 2p. So going back to your question, at the moment we have 33 wells in Matamora and three other wells in Confluencia. And we still remind we have 148 more wells to drill in Matamora. So that's important because that represents the reserve that we have in the book. Those reserves are divided in three, as you maybe know, proven and developed. We have 69 location or wells. In Probable, we have another 30, and in Possible, we have 48 more wells. Important to remark, at least for this year, is we have certified contingent resources. 113 million barrels are coming from Confluencia, Norte, and Sur, and Matamora Sur. That represents more than 250 well for the future of the company. So that's the answer of the question that you are doing.

We have a question from Joaquin Robay from Balance Capital. Joaquin, your line is open. Please go ahead.

Great. Thank you. So I have two questions. First one is, although back and work operations are still relatively new, would there be any interest in pursuing additional M&A opportunities in Argentina, particularly if larger players were to exit the market?

Hi, Joaquin. Joaquin, I'll respond to your question in the broadest M&A sense, which is that clearly M&A is an important element of our strategy. I think we have been vocal about that. Of course, we have an organic business that continues to be our priority, but we believe that going forward M&A is an element of our recipe to success and to that effect we are we're active in that arena. We are seeking value as Andres said in his introductory comments and we're seeking long-term sustainable profits. I think what's particular of where we are now is that we have a very focused strategy. We are drilling down on big assets, big basins, big plays. We've said that before. That's the sort of things that we're looking into. It's not a dispersed strategy that we're looking or opportunistic strategy that we're looking at everything that's out there. So we use lenses to filter these opportunities and to ensure that our efforts are consistent with our strategy. From a geographical standpoint, what we said is that Colombia, Argentina, and Brazil are our places of interest. Clearly, and to your question, Baca Muerta is a place of interest for us, and we are constantly monitoring and evaluating whether these opportunities make sense for us with those lenses that I mentioned. there's obviously a further lens which is the discipline financial framework that we have and that we've shared and that is also a consideration so so all these to say that we are regularly evaluating these opportunities is part of our day-to-day and as these opportunities mature and and to the effect that they materialize we will share news with you about it thank you very much great uh we have a question from vincent falanga from bradesco how can we think about output evolving in argentina throughout 2025 any hurdles with wells so far so vincent this is hi man i'm just gonna play back that question because we had a little bit of an audio problem If I understood correctly, you want to understand the production trajectory in Baca Muerta in 2025 and if we have, how are we looking at our drilling performance and well performance there? So I think Martin is going to kick that one off.

Yeah, so thank you, Vicent, for the question. And so our strategy on our output in Argentina, you can think it as a growing, again, starting from the acquisition, like Andres mentioned, 10,000 barrels, we're at 15,000 barrels with one rig in this part of the basin and with this type of wells, we can reach 20,000 barrels of oil per day, which we expect to be reaching by middle of next year. And to go above that, towards 40,000 barrels, we need the second rig, which is, again, like we've been mentioning, we will be bringing that second rig in the early 2026. And beyond the 40,000 gross, depending on the results that we get, we have locations And we will see how exploration continues to proceed in the confluencia blocks. So far, the confluencia south pad with three wells is delivering good rates. Again, like Andres mentioned, we're drilling right now a pad in Matamora, and from there we move to confluencia south to drill four wells. And then from there we go back to Matamora. and so from a outlook of where we are on on production and what we perceive that's that's where we're going and so far the results are delivering according to our expectations when we did the acquisition and one of the things that it's important for everybody to understand is that when in back and mortals were drilling wells. These wells initially flow naturally. So we do have some months where the production you might see that goes down because we're shutting in the production so that we can put artificial lift. So those are things that it's not, it continues going up. There are some months where we already know that production is going to come down. It is on our plan. There's also a parent-child effect, which we are aware of. We put it in our budget, we're discussing it and learning as we're drilling paths between existing paths along with Phoenix, the operator, which we have a really good relationship from all places. But from a subsurface and operational perspective, we have secondees and we work together. So that gives you a little bit of an idea of where we are thinking and how our plan is delivering according to what we had in mind. I don't know if you want to add anything, Rodrigo.

Thank you, Martin. Vicente, if you are asking about the harness, of course we have certain challenges as all the industry in the basin. One of those is the well-cost pressure because even if we are increasing the density in the fracking, That's good in terms of productivity, but also we are trying to keep the well costs under control, so that's one of the challenges that we have. And Martin mentioned something about the pattern and child effect. The development in Vaca Muerta, at least for us in Matamora, is new, but we are, this year, in 2025, putting on production pattern number 9 and pattern 12. Both paths are close to other paths, so we are going to be very close trying to understand the parent-and-child effect. Even so, we estimate a reduction in the well productivity due to this effect in our estimation. So we will learn and see how this evolves in the future, but those are the key challenges that we are seeing for the 2025.

Vincent's next question reads, what are the next steps in terms of possible M&A after the Repsol transaction did not work out?

Yes, Vincent. I think I covered that in the prior question. I would say that the only thing that I can add is something that we're just regularly monitoring. And in the space of M&A, as you probably heard Andres say many times in the past, it's all about discipline and it's about patience so we look at many things and and we look at them in a proactive way in a deep way in a profound way to make sure that it it fits with the strategy creates value a and and we need for the right opportunities to to materialize nothing more to add on that as a reminder that star followed by one on your telephone keypad or text questions can be submitted by the webcast your queen from balance is a text question that reads given the challenges posed by natural decline rates in colombia's general production the capital expenditure plan of 50 million us dollars and the addition of 20 new wells annually seems sufficient to mitigate these declines and sustain production yes thanks thanks for the question so you know the way that we're thinking about about capex deployment in colombia is actually in service of of two priorities I think our first priority is to arrest decline, right? It's arresting decline. I would characterize that as we have two significant, you know, world-class fields in GANOS 34 and in CPO 5 that are in a declining trajectory. We've spoken about that in the past. And we believe there is a lot of value to be captured in mitigating that decline to the extent that it's possible, right, to the extent that it's possible. That typically, that capital allocation that we're seeing now is transitioning from a development drilling type bias program to something that is gradually more around a well work activity and occasional development prioritized drilling campaigns. That's what's occurring, and that's what we expect over the next number of years. As you probably saw in our research release that we did a couple of weeks ago, there is a substantial research base associated to these fields. You know, the 1P reserves in Colombia are in the order of 60 million barrels. So, our capital deployment that you're seeing now underpins that. We don't need to achieve the sort of CAPEX numbers that we had in the past anymore, because it's no longer intensive in development drilling. And that's actually good news, because it actually means that from a free cash flow standpoint, and from a profitability standpoint, this CAPEX has tremendous economics. So, that's priority number one, arresting decline. The second priority is to pursue the very best exploration prospects in our portfolio. And that's the process that we've been through over the last year, which is looking at the totality of the exploration opportunity set that we have and selecting the very best prospects, the prospects that we think can move the needle in our portfolio, and that if successful, if successful, while they have an important risk component to that, because that's the nature of exploration, if successful, they can open up substantial plays. And that's our focus now, right? To that effect, we talked about five important prospects this year, and a capex is going to evolve as a function of the results that we see from those wells obviously if these wells are successful and they prove that we can have material place going forward we will be adjusting our capital a program in Colombia to reflect that so that's that's kind of how we think about this thank you we have no further questions so I'll hand the call back to management team for any closing comments thanks everybody for your interest and your support

of geopark and we're always here to answer any questions so reach out give us a call or visit our our operations thank you and have a good day this concludes today's call thank you very much for your attendance you may now disconnect your life