GeoPark Limited Price & Performance (GPRK)

After the speakers' remarks, there will be a question and answer session If you do not have a copy of the press release, it is available at the Investor With Us section on the company's corporate website at www.geopark.com. A replay of today's call may be accessed through the webcast in the Investor Relations 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 forward looking statements rather than historical fact and are subject to risks and uncertainties that could cause 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 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 are stated in U. S. Dollars and as otherwise noted.

Reserves figures correspond to PRMS standards.

On the call today will be Markus Andres Ocampo, Chief Executive Officer Jimmy Caballero, Chief Financial Officer Martin Tirado, Chief Operating Officer Rodrigo Dalafiori, Chief Exploration and Development Officer Maria Catalina Escobar, Shareholder Value and Capital Markets Director And now, I'll turn the call over to Mr. Andres Acampo, Mr. Acampo, 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 Slide 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 total oil and gas production for 2024 averaged almost 34,000 barrels a day equivalent, which is 7% 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 Baca Muerta delivered an average production of over 15,000 barrels a day gross in the fourth quarter of twenty twenty four which is 19% higher than the third quarter of twenty twenty four, 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.

Orbaca Muerta assets delivered approximately $25,000,000 of EBITDA net to GeoPark in the fourth quarter and approximately $100,000,000 net on a full year a pro form a basis. Importantly, during the fourth quarter of last year, we put on production our first exploration path in the confluence of LLOG 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 derisking the approximately 90,000,000 barrels of net working interest certified contingent resources in the confluential 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 ninety 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 pad in Confluencia Sur block, which is expected in the second half of twenty twenty five. The production volumes and EBITDA figures associated with Vaca Muerta are not yet reflected in our consolidated production and financial figures for 2024 As 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 07/01/2024. Reserves at year end 2024 reflect the upgrade and recalibration of our asset base through the acquisition in Argentina as well as the adjustments to the Colombian portfolio. Pro form a 2P reserves reached nearly over 160,000,000 barrels, driven by the addition of 74,600,000 barrels from the Vaca Muerta assets, 41% year on year increase. This growth extended our reserve life index to thirteen years on a 2P basis while 1P reserves 102,000,000 barrels extended our one peer served life index to eight point two years, reinforcing our long term value creation. Full year 2024 adjusted EBITDA reached $416,000,000 representing approximately 8% decrease compared to twenty twenty twenty three following lower production and one off financial expenses in the fourth quarter twenty twenty four, 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 $191,000,000 in expenditures during 2024 maintaining our strong capital efficiency ratio of 2.2 times adjusted EBITDA. Net income for the year stood at $96,400,000 13% lower than 2023 mainly due to lower production, lower revenues and higher effective tax rate. However, operating profit for the year remained solid, underscoring our robust cash generation capacity and disciplined financial management amidst lower revenues.

We concluded the year with $276,800,000 in cash including $152,000,000 withdrawal of a prepayment facility to pay down the Vaca Muerta acquisition. Our net leverage of 0.9x remains well below our declared long term target of under 1.5x adjusted EBITDA And we have no material debt commitments due until 02/1930. Enhancing our financial flexibility and reducing significantly our refinancing risk. Our financial strength allowed us to continue rewarding our shareholders with almost $74,000,000 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 outstanding shares by 8% to 51,200,000.0 and underscored our commitment to capital discipline and shareholder value. Also, have just declared a quarterly cash dividend of almost $0.15 per share payable on March 31, reinforcing the 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 and 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 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 Janus 34 block that will enhance our recovery and field productivity. In both the Janos 34 and CTO-five blocks, we will continue optimizing production and efficiency and in the Putumajo base and other assets will advance our exploration program. In Baca Muerta, we continue the development [indiscernible] with the recent completion of the Pad 9 and the current drilling of Pad 12. Following this, the rig will move to Confluencia Sur Bloc 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 twenty twenty six as agreed in our business plan. This will be a critical element to growing our current production base to a gross in Matamoros of approximately 40,000 barrels a day. We are committed to maintaining our strong balance sheet excluding 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 We will be happy to answer any questions you may have. Thank you.

We'll start with some written questions from Daniel Gardener from BTB Pactual. Can you provide details on the USD152 million recorded as customer advanced payments in the cash flow statements.

What is the expectation on this item for the upcoming quarter?

Hi, good morning, everybody. Thanks Daniel for your question. This is Jaime Callejo speaking. With regards to what you saw in our books as customer advanced payment, this is actually related the withdrawal that we made of EBITols committed line back in 4Q. Essentially, what we did is we wanted to make sure that we were ready for funding the the closing of the Argentina transaction and the agreement that we had with Bitol had some amounts committed to to a certain timeframe. 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 [indiscernible] Because essentially it's a prepayment of oil proceeds. We drew $152,000,000 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 be toll And now the balance of that is has been reduced to about $20,000,000 So going forward, what you're going to see in our balances in that category of customer advanced payment is probably going to be something in that in that arena of $20,000,000 From a debt standpoint, obviously, what we did with refinancing substitutes the debt, so the net effect is is minimal.

And what you should expect to see going forward is a gross debt that is in the area of $670,000,000 which is the $550,000,000 from the bond plus from a newborn, plus $100,000,000 from the outstanding prior bond and these $20,000,000 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 the closing. There's actually no or anything that is specifically delaying that It's just going through normal course with the involved regulatory 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 normal delays on approvals like this. We've seen precedent transactions closing much faster than these. And we also unfortunately have seen other transactions closing with more delays than these.

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 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 at as July. But obviously, the fact that we are we haven't closed it does not allow us to report our consolidated production or consolidated numbers As they should. [indiscernible] again, I think, hopefully, we'll get it to a closing but it's somewhat beyond our hands beyond our control unfortunately. [indiscernible] what net transportation capacity do you have in the Duplicar project? And what is the expected trajectory of the production of the Vatra Muerta assets in 2025? Good morning, Daniel. This is Martin Terreiro.

So the current capacity that we have and I'll talk about 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 gross production that we can handle through the Duplicar. So what we're doing and we've been sharing with you in the past is that the difference between the current production [indiscernible] 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 the field to that spare capacity from others. And there's around 10% that goes through trucks.

Okay? So that's from a perspective of allocated capacity When we look at our production, the production as Andreas mentioned [indiscernible] And with one rig, we continue on our plan to reach 20,000 barrels of oil per day growth by middle of next year And then also as Andres mentioned, we are going to be getting a second rig early twenty twenty six towards our 40,000 barrels of oil per day gross. So what we have is full coverage of our production through all of 2025 and through the middle of twenty twenty six, 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 Vaca Muerta?

Thanks Daniel for your question. So I think the way that we think about our capital allocation 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. What 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 deck. 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 twelve month period. So the way that that hedging program has evolved East we make sure that we are covering a forward production curve that is sufficient to ensure the revenues and the netbacks 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 to keep the oxygen line to our CapEx for at least twelve months. I think that's a second important criteria. In that line, about 70% of of the next twelve months of production hedged We have already secured floors of $68.69 dollars 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 twelve months. So all these to say, that given these protections that we have in place, we would require a very sharp and and prolonged drop in oil prices for us to change our plans. Our plans are unchanged. We're not reviewing them. We're not intending to to adjust them in the current price environment given these these principles that I mentioned. Thank you.

The note's final question reads, how many drilling locations is the reserves reported at the Vaca Muerta assets considering?

Thank you, Daniel. This is Rodrigo. Very important question you you are doing because 46% today of our 2P reserve are coming from Baca Muerta. Representing 74,000,000 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 represent the reserve that we have in the book. Those reserve are divided in three.

As you may be know, proven undeveloped, we have 69 location or wells In probable, we have another study and in possible, we have 48 more wells.

Important to remind at least for this year is we have certified contingent resources. 113,000,000 barrels are coming from Confluencia Norte and Sur and Matamorasur that represent more than two fifty wells for the future of the company.

So that's the answer of the question that you are going. We have a question from Yacleen Rebe from Boulanz Capital.

Yacine, your line is open. Please go ahead.

Great. Thank you. So I have two questions. First one is although Bakamarc Operation Are Still Relatively New Would There Be Any Interest In Pursuing Additional M And A Opportunities In Argentina, particularly if larger players were to exit the market.

Hi, Joaquin. Joaquin, I'll I'll respond to your question in the broadest kind of M and A sense. And which is that clearly M and A is an important element of our strategy. I think we have been vocal about that.

Of course, we have We have an organic business that continues to be our priority but we believe that going forward, M and A is an element of our recipe to success. And to that effect, we are active in that 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 what's particular of where we are now is that we have a very focused We are drilling down on big assets big basins, big plays, 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 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 disciplined financial framework that we have and that we've shared and that is also a consideration.

So all this 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 expect that they materialize, we will share news with you about it.

Thank you very much. Great. We have a question from Vincent Solange from Bradesco. How can we think about output evolving in Argentina throughout 2025?

Any hurdles with wells so far?

So Vincent, this is hi, Matt. I'm just going to 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. Yes. So thank you, Vincent, for the question. So our strategy on our output in Argentina, you can think it as growing Again, starting from the acquisition, like Andres mentioned, 10,000 barrels were at 15,000 barrels with one rig in this part of the basin and in these 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 twenty twenty six.

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, Confluencia South Pad with three wells is delivering good rates [indiscernible] 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.

So from a outlook of where we are on production and what we perceive that's where we're going. And so far, the results are delivering according to our expectations when we did the acquisition. One of the things that it's important for everybody to understand is that in Vaca Muerta, it was well 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 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 in our budget. We're discussing it. And learning as we're drilling pads between existing pads along with Phoenix, the operator which a really good relationship from all places, but from a subsurface and operational perspective, we have second these and we work together.

So gives you a little bit of an idea of 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 harness, of course, we are 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 fracking, that's good in term of productivity, but also we are we are trying to keep the well cost under control. So that's one of the challenges that we have. And Martin mentioned something about the parent and child effect. The development in Baca Muerta, at least for us in Matamoros new, but we are we are this year in 2025 putting on production pad number nine and pad 12. Both paths are closed to other paths. So we are going to be very close trying to understand the parent 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 evolve in the future.

But that's 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 and 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. [indiscernible] In the space of M and 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 we look at them in a proactive way. In a deep way, in a profound way to make sure that it fits with the strategy, it creates value, And we need for the right opportunities to materialize. Nothing more to add on that.

Your Qween from Boulanz has a text question that reads, given the challenges posed by natural decline rates in Colombia's general production, the capital expenditure plan of US50 million dollars and the addition of 20 new wells annually seems sufficient to mitigate these declines and sustain Yes. Thanks for the question. So the way that we're thinking about CapEx deployment in Colombia is actually in service 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 world class fields in Janos thirty four and CPO5 that are in a declining trajectory. We've spoken about that in the past. [indiscernible] 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 is 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 reserves base associated to these fields.

The 1P reserves in Colombia are in the order of 60,000,000 barrels. So our capital deployment that you're seeing now underpins that. It's not 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. [indiscernible] 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 deal 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 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 program in Colombia to reflect that. So that's kind of how we think about this.

We have no further questions. So I'll hand the call back to the manager 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 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 lines.