Event in Progress:
View the latest research on other companies in the sector.
• GeoPark has submitted a binding offer to acquire a non-operated Working Interest in unconventional blocks in the Neuquen Basin in Argentina. The offer has been accepted by the seller and the parties are working on an exclusive basis towards execution of definitive agreements. The completion of the transaction could occur in 3Q24 • The acquisition would add net production of 5 mboe/d. • The acquisition price is ~US$200 mm plus an additional carry of US$110-120 mm (gross), over a two year period, for exploration activities. • Since the new administration in Argentina came to power a few months ago, the country has attracted more interest from the industry with multiple new laws looking to loosen regulations. YPF has also started a formal sale process for 55 mature producing conventional fields with 100 mboe/d aggregate production that it expects to be complete by YE24. Along the same lines of what happened in Brazil, this could revitalize interest in Argentina with the entry of multiple new players. • Pending further details on the transaction, we re-iterate our target price of US$26 per share. Vista Energy: a blue print for what can be achieved in Argentina Vista Energy is an almost pure play on Argentina with a focus on developing unconventional asset in the Vaca Muerta. The company holds ~308 mmboe 2P reserves in the area and produced 55.5 mboe/d (86% oil) in 4Q23. Vista has increased production by 45% since 2022 and proven reserves by ~70% from YE21 to YE23. FY23 opex are expected to be only US$5.1/boe in 2023 with adjusted EBITDA of US$871 mm. Vista expects to grow production further to 68-70 mboe/d in 2024 and 100 mboe/d in 2026. Over the last 12 months, the share price of Vista has doubled and the current EV of the company is ~US$4.6 bn, suggesting that the shares trade at multiples of >5x for EV/EBITDA 2023 and US$83,000 per flowing barrel per day (2023). By comparison, GeoPark’s shares trade at only ~2x EV/EBITDA 2023 and ~US$27,000 EV/flowing barrel (2023) respectively. Valuation Our Core NAV and ReNAV are unchanged at respectively US$21.4 per share and US$26.15 per share.
Geopark
• The key takeaway from the 4Q23 results press release is the announcement of a modified Dutch auction tender offer to purchase up to US$50 mm of GeoPark shares at a price of US$9-10 per share. This represents ~10% of the current market cap of the company. The tender price range represents a premium of 8-20% to the prior day close. • The company is sending a strong signal that its shares offer value. The tender price is well below the independent net debt adjusted NPV (after tax) of the company’s 1P reserves (~US$14 per share). • The auction could also reduce any potential overhang on the share price by allowing selling shareholders to tender blocks of shares at a premium (rather than by having to progressively sell their positions in the market, which could generate downward pressure on the share price). • A Dutch auction offers the benefit of a traditional share buyback with potentially reduced impact on the daily share liquidity. • As we incorporate the impact of the US$50 mm Dutch auction tender offer, we have increased our target price from US$25 per share to US$26 per share in line with our new ReNAV. While the tender offer is in addition to the share repurchase program announced last November we are assuming that this traditional share buyback programme will be minimal in 2024. Valuation We have increased our Core NAV from ~US$18 per share to ~US$21.4 per share and our ReNAV from US$25 per share to ~US$26.1 per share.
Geopark GeoPark Ltd
• 2P YE23 reserves were estimated at 115.1 mmboe. Excluding 14.6 mmboe at YE22 in Chile (being sold), this compares to 113.8 mmboe at YE22. During 2023, GeoPark has added ~14 mmboe of 2P reserves. With 12.7 mmbope production in FY23, this represents a reserve replacement ratio of 110%. • The largest contributors to reserve addition are Ecuador (2P increased by 5.3 mmboe to 7.1 mmboe) and the new 2023 discoveries in Colombia with YE23 2P reserves of 3 mmboe at Halcon/Perico (CPO-5) and 3 mmboe at Bisibita, Saltador and Toritos. No reserves were associated to these three new Llanos fields at YE22. We anticipate that the reserves at these fields could continue to grow as GeoPark drill 3-9 further wellsin these new Llanos areas in 2024. • The Net debt-adjusted 1P NPV10 and 2P NPV10 (after Tax) were estimated at respectively ~US$14 per share and US$26 per share. The 2023 discoveries are estimated by the reserve auditor to have added US$175 mm NPV10 (after tax). • As we incorporate the impact of the reserve additions, we have increased our target price from US$24 per share to US$25 per share in line with our new ReNAV. • The key newsflow for 1Q24 includes testing of two exploration wells in Llanos basin in Colombia (Halcon-1 and Zorzal Este-2) and appraisal drilling in Ecuador (Perico Norte 5). FY24 guidance (adjusted for the divestment of Chile) unchanged GeoPark has now excluded Chile from its FY24 production guidance. This results in a FY24 production guidance of 35.5-39 mboe/d (37-40 mboe/d including Chile) with US$150-200 mm capex (unchanged as no capex was expected to be allocated to Chile). Halcon/Perico (CPO-5), Bisibita, Saltador and Toritos are key areas for potential reserves and production addition in 2024. Valuation Following the reserves addition at YE23, we have increased our Core NAV from ~US$18 per share to ~US$20 per share and our ReNAV from US$23.80 per share to ~US$25 per share.
• The Perico-1 exploration well at CPO-5 encountered hydrocarbons in the Barco (Guadalupe) formation. The well is currently producing 650 bbl/d of 14 deg API oil with 8% water cut. This is an important well that confirms the extension of the Llanos-34 Guadalupe play into CPO-5 and is probably derisking further prospects. This is the fifth discovery made in the Llanos since mid 2023. • The Halcon-1 well at CPO-5 that also encountered potential hydrocarbons in the Guadalupe flowed at intermittent rates. There could be some potential well damage. A workover to repair the well is planned for January. • The Bisbita Centro-1 well (Llanos-123) is now flowing ~750 bbl/d with
• The Bisbita Centro-1 well (Llanos-123) encountered hydrocarbons in the Guadalupe formation. The well is currently producing ~860 bbl/d of 19 degrees API oil with a water cut of less than 1%. • At Llanos-87, the Zorzal Este exploration well that encountered 40 feet of pay in the Guadalupe is currently producing ~660 bbl/d of 33 degrees API oil with a water cut of less than 1%. • The Zorzal Este 2 well (Llanos-87) spudded in late November 2023 and is expected to reach total depth in late December 2023/early January 2024. • Overall the FY23 exploration programme has added 5.5 mbbl/d gross production, including 3,200 bbl/d at Llanos-123 and Llanos-87 blocks and 2,300 bbl/d at Perico in Ecuador. Importantly these new areas of production are associated with discoveries made since the summer. They should start contributing to the reserves estimate at YE23. • Zorzal and Toritos could be particularly material and be important contributors to production and reserves growth in 2024. The 2024 work programme includes 3-9 gross wells to continue delineating these new plays. • We re-iterate our target price of US$25 per share. New CFO GeoPark has appointed Jaime Caballero Uribe to the position of CFO. Until August 2023, Mr Caballero Uribe was Group CFO at Ecopetrol (listed on the NYSE) the largest corporation in Colombia and one of the 400 largest companies in the world. Mr Caballero Uribe was previously CFO for the Brazil Region (which includes Colombia, Uruguay and Venezuela) at BP. Valuation As we incorporate the results at Bisbita and Zorzal Este, we have increased our Core NAV and ReNAV from respectively ~US$17/sh and ~US$24/sh to US$19/sh and US$25/sh.
• 3Q23 production had already been reported. GeoPark held US$106 mm in cash at the end of September, which is in line with our expectations. • 25-30 feet of hydrocarbon pay were encountered in the Guadalupe formation at the high impact Halcon-1 exploration well at CPO-5. The OWC was not encountered. The Guadalupe formation is one of the producing formations at Llanos-34 and is the reservoir that GeoPark was looking for. The well will now be tested. An appraisal well (Perico-1) will spud adjacent to Halcon-1 before YE23 to delineate the play. • At Llanos-87, the Zorzal Este 1 exploration well encountered 40 feet of hydrocarbon pay (no OWC encountered) in the Guadalupe and will be tested in November. A new appraisal well will spud at Zorzal Este by YE23. • At Block 123, a new appraisal well will be spudded at Toritos by YE23 and GeoPark is currently drilling the Bisbita Centro-1 exploration well. • In light of the positive exploration drilling results and the extensive FY24 appraisal programme, Llanos-87, Llanos-123 and the Perico block (Ecuador) could become material producers by YE24 (Llanos-123 and Perico already produce ~2.1 mbl/d and ~2.4 mbbl/d gross respectively). • Pending further details on the exact sizes of the resources at Llanos-87, Llanos-123, Perico and Halcon, we re-iterate our target price of US$25/sh. The story benefits from multiple drilling catalysts in 4Q23 and beyond. FY24 Guidance GeoPark expects to produce 37-40 mboe/d in 2024. While this is below our expectations of ~41 mboe/d, this reflects the fact there will be no investment (and therefore steep production decline) in lower value assets such as Chile or Platanillo. The US$150-200 mm FY24 capex programme includes a very wide range of appraisal wells at Llanos 87/123 (3-9 wells) and in Ecuador (2-7 wells) depending on the results of the initial wells. Given the potential materiality of these assets, the YE24 production could be much higher than the FY24 average production guidance. The FY24 production guidance includes 33-35.5 mboe/d in Colombia, 1.6-2.0 mbbl/d in Ecuador, 1-1.3 mboe/d in Chile and 1-1.2 mboe/d in Brazil. 30% of the total capex will be allocated to exploration with 1-2 wells on the Put-8 Block, 1 well at Llanos-87/123, 1-2 wells at Llanos-34 and 1 well at CPO-5. Valuation and shareholder distribution policy Our Core NAV of ~US$17/sh and ReNAV of ~US$24/sh incorporate the FY24 production profile and the FY24 capex and exploration programme. Our valuation for Llanos-87/134 and Perico is broadly unchanged pending further visibility. The company is distributing >50% of its Free Cash Flow (FCF) in 2023. 40-50% of FY24 FCF (that we estimate at US$150 mm) will be distributed to shareholders as dividends or share buybacks.
• 3Q23 production of 34,778 boe/d was below our forecasts of 37.3 mboe/d mostly due to a 10 day blockade at Llanos-34 (-~1.8 mboe/d) and slightly lower production at Platanillo (-~400 bbl/d) and CPO-5 (-~300 bbl/d). • Current production stands at ~39 mboe/d including 7.1 mbbl/d at CPO-5 and 24.4 mboe/d at Llanos-34. • Following the recent exploration success at Toritos-1 and Saltador-1, Llanos-123 is now producing 2,140 bbl/d (1,070 bbl/d net to GeoPark). The very rapid exploration to production cycle (just a few months) showcases the business model of GeoPark. The company is now drilling the Bisbita Centro exploration well that could add further production at the block if successful. Llanos-123 is a new area of production for GeoPark that could see further development wells in 2024. • The Cucarachero-1 exploration well on Block-24 was dry. • Following the success of horizontal drilling in the Mirador at Llanos-34, the program has been extended to six wells (from four initially). • We have changed our target price to US$25 per share (in line with our new ReNAV) to incorporate the result of the Cucarachero-1 well and the 3Q23 production. Newsflow by YE23 The key near term newsflow is the drilling result of the Halcon-1 well at CPO-5. There other near term catalysts by YE23 include the drilling of Zorzal Este 1 (LL-87), Bisbita Centro 1 (LL-123) and Perico Norte-4 (Ecuador). Valuation Our Core NAV is broadly unchanged at ~US$18.30 per share. Our new RENAV is ~US$24.65 per share (~US$25.70/sh previously).
• The Indico 6 and Indico 7 wells in the CPO-5 block in Colombia are now back online. Each well is expected to reach 4,000 bbl/d gross production (8,000 bbl/d gross total, 2,400 bbl/d net to GeoPark). The total gross production of both wells could reach 9,000 bbl/d by YE23. • The Toritos 1 exploration well at LL-123 encountered hydrocarbons in the Guadalupe and Gacheta formations and is now on production at a rate of ~1.4 mbbl/d with 1% water cut. The Saltador 1 well at LL-123 is on production at a rate of 765 bbl/d with 3% water cut. Overall gross production from LL-123 is now >2.1 mbbl/d, which will contribute to 4Q23 production. This is expected to add reserves. • The positive result at Toritos led GeoPark to decide to drill a new exploration well in 4Q23 (Bisbita Centro 1) on LL-123. The prospect will be located 1.5 km south of Saltador 1. • The Yin 2 well (result announced in August) is currently producing 765 bbl/d with 1% water cut. The Perico Centro 1 exploration well has also encountered hydrocarbons in the U-sand formation (as at Yin-2) and has been put on production at a rate of 800 bbl/d (28 deg API and 1% water cut). These wells are also expected to add reserves. The U-sand is a new reservoir that had not been developed previously by GeoPark. • With multiple near term drilling catalysts by YE23, we have increased our target price to US$26 per share to incorporate the positive exploration drilling results. Newsflow by YE23 There are multiple near term catalysts by YE23 including the drilling of Zorzal Este 1 (LL-87), Halcon (CPO-5), Cucarachero 1 (LL-124), Bisbita Centro 1 (LL-123) and Perico Norte-4 (Ecuador). GeoPark has also initiated a production test of the longest horizontal well drilled so far at LL-34. The result of this well could have positive implications on recovery factor, production plateau and reserves at LL-34. The first horizontal well drilled at LL-34 earlier this year initially produced >3 mbbl/d. Valuation Our Core NAV has increased from ~US$16.80/sh to ~US$18.80/sh. Our RENAV has also increased from US$24.80/sh to US$25.70/sh. Our FY23 production profile is marginally reduced. While the late production re-start of CPO-5 is offset by the new production at LL-123 and in Ecuador, we have taken a more cautious view on production in Chile and Brazil.
• 2Q23 production of 36,581 boe/d and cash at the end of June had already been reported. • The Indico 6 and Indico 7 wells in the CPO-5 block in Colombia continue to be expected to return to production in August. The operator has completed most of the required surface work. GeoPark has re-iterated its FY23 production target of 38.0-40.0 mboe/d. • With contribution from 5-6 new horizontal wells with increasingly long laterals by YE23 and better uptime at Llanos-34, 4Q23 production is expected to reach 40-41 mboe/d. • The Saltador-1 well at Llanos-123 has encountered 29’ of net pay in the Barco (Guadalupe) formation. The formation has been put on production at ~880 bbl/d (5% water cut). Importantly the well could derisk a larger prospect located to the south of the block that could be drilled around YE23 or early 2024. • The discovery of 48’ of net pay in the new U-sand formation at the Yin 2 well is another positive. Frontera Energy reported initial production rates of ~1,200 bbl/d of 30.5 degree API crude oil. • With multiple near term drilling catalysts including (1) the testing of Yin-2 that could add reserves and production, (2) the drilling of the Zorzal Este-1 (Llanos-87), Toritos-1 (Llanos-123) and Halcon (CPO-5) exploration wells, (3) the Cucarachero 1 exploration well (Llanos-124) reaching TD imminently, we re-iterate out target price of US$25 per share. Reflections on cost and discounts Opex in Colombia has increased by ~US$2/boe to US$10.8/boe due to an increase in electricity cost. This is the result of a dryer climate that negatively impacted hydroelectricity supplies. The Vasconia discount in Colombia has now decreased to ~US$3.5/bbl but it was between US$8.4/bbl and U$5.9/bbl in 2Q23. Valuation Our Core NAV is ~US$16.80/sh (ReNAV of ~US$24.80/sh). Over 1H23, GeoPark has already returned ~US$34 mm through dividends and share buybacks. Assuming the same amount is distributed to shareholders during 2H23 would lead to FY23 total shareholder distributions representing ~12% of the current market cap.
• 2Q23 production of 36,581 boe/d was in line with our expectations with strong performance at Llanos-34, Platanillo and CPO-5, offsetting lower production in Chile and Ecuador. • The Indico 6 and Indico 7 wells in the CPO-5 block in Colombia are now expected to return to production in August (rather than July) when the required surface facilities are completed. • The company has re-iterated its FY23 production target of 38.0-40.0 mboe/d but the guidance is sensitive to the timing of production restart at Indico 6 and Indico 7. • The drilling programme is accelerating with one horizontal well at Llanos-34 about to be flow tested and multiple exploration wells in the Llanos having reached target depth or about to. Three more rigs are being added in 3Q23 to the nine currently in operation. GeoPark is considering drilling 3-4 additional horizontal wells at Llanos-34 in 2H23, which is expected to have a positive impact on production. The first horizontal well at Llanos-34 is producing >3 mbbl/d. • The cash position of US$86 mm at the end of June was in line with our expectations (after paying US$88 mm in tax – also in line). Overall GeoPark continues to expect to generate free cash flow of US$120 140 mm in 2023 at Brent of US$80-90/bbl. • We re-iterate out target price of US$25 per share. Drilling update At Llanos-123, the Saltador 1 exploration well encountered hydrocarbons in the Barco and Mirador formations. Testing activities are expected to start in July/August. The Toritos 1 exploration well will also spud in August. At Llanos-124, the Cucarachero 1 exploration well is expected to reach total depth in August. At Llanos-87, a well updip of the Zorzal 1 discovery is expected to target incremental potential identified in the Barco formation. The high impact Halcon well at CPO-5 continues to be expected be drilled in 2H23. At the Llanos-86 and Llanos-104 blocks (GeoPark: 50% WI), GeoPark plans to acquire over 650 square kilometres of 3D seismic, expected to start in early 2024. This would be one of the three biggest onshore seismic acquisition projects in Colombia and is expected to add additional exploration prospects. Valuation Our Core NAV is ~US$16/sh (ReNAV of US$24.3/sh). Our aggregate free cash flow forecast over 2023 2024 now represents >50% of the current market cap and the current dividend represents a ~5% dividend yield.
• 1Q23 production of 36,578 boe/d had already been reported. • The Indico 6 and Indico 7 wells in the CPO-5 block in Colombia are now expected to return to production in July (rather than May) when the definitive surface facilities are completed. The facilities are 60-65% complete and there is improved confidence that date can be achieved. These two wells represent ~2.4-3.3 mbbl/d net to GeoPark. • As a result of this delay and combined with the shut-in production of approximately 400 bopd in Chile due to ongoing commercial negotiations with ENAP, the oil offtaker, GeoPark has reduced its FY23 production guidance from 39.5-41.5 mboe/d to 38.0-40.0 mboe/d which is very close to our previous forecast of 39.9 mboe/d. 2H23 production is expected to stand at 39-42 mboe/d. • The negative impact on the FY22 cash flow is offset by a US$20 mm reduction in the FY23 capex guidance to US$180-200 mm. This mostly (75%) reflects more efficient operations and cost reductions but also (25%) a rescheduling of drilling in Ecuador with only 1-2 wells expected to be drilled in the country in 2H23. Overall GeoPark continues to expect to generate Free Cash Flow of US$120-140 mm in 2023 for Brent of US$80-90/bbl. • As we update our production and capex forecasts and trim our Brent price assumptions from US$92/bbl to US$89/bbl in 2023, we have changed our target price to US$25 per share. Other important take away In 2Q23, GeoPark will drill 2-3 new exploration wells at Llanos 123 and 124. The high impact Halcon well at CPO-5 will be drilled in 2H23. Overall 6-8 new exploration wells will be drilled in the balance of 2023. The first horizontal well in the Tigana field (LL-34) continues to perform very well. Oil production from the well continues to be ~3,000 bbl/d with hardly any drawdown and no water. This is important as other horizontal wells are expected to be drilled and they could increase production at LL-34 to the high end of the FY23 guidance and potentially extend plateau production. Valuation Our Core NAV is now ~US$17/sh (ReNAV of ~US$25/sh). Following the recent share price drop, our aggregate free cash flow forecast over 2023 2024 now represents >50% of the current market cap and the current dividend represents a ~5.4% dividend yield.
• 1Q23 production was 36,578 boe/d. This is very close to our expectations of 37,200 bpe/d. High production at CPO-5 (WI: 5,012 bbl/d vs our expectation of 4,500 bbl/d) and Platanillo (2,227 bbl/d vs our expectation of 2,000 bbl/d) was offset by lower production in Chile and Brazil on lower gas offtake. Production in these two countries is lower margin than in Colombia. • The Indico 6 and Indico 7 wells in the CPO-5 block in Colombia continue to be offline until definitive surface facilities are completed. These two wells represent ~2.4-3.3 mbbl/d net to GeoPark. The facilities continue to be expected to be completed in 2Q23 (May). • The first horizontal well in the Tigana field (LL-34) has been put on production at a flow rate over 3,000 bbl/d with virtually no water cut from the Mirador formation. This is a very good flow rate that has taken gross production from the block from 54.8 mbbl/d in 1Q23 to ~57 mbbl/d currently. The well cost ~US$10 mm. According to Parex Resources (GeoPark’s partner), there are potentially ten horizontal well locations in the block. Mirador is a reservoir that has hardly been tapped so far but that can offer upside potential and could extend plateau production. Overall, we estimate that a minor portion of the reserves at LL-34 are associated with this reservoir. • Other areas of interest and potential upside at LL-34 include the ongoing water flood programme in certain marginal areas and some additional appraisal activities in minor fields. • GeoPark is re-iterating its FY23 guidance of 39.5-41.5 mboe/d. • We have changed our target price to US$26 per share as we incorporate recent drilling results. Exploration drilling results The Picabuey 1 and Koala 1 wells at LL-87 were dry. The Tororoi 1 and Zorzal 1 wells (LL-87) flowed oil to surface (240 bbl/d in the case of Tororoi 1) but further work is required. Follow-on wells could be drilled at these two locations. The Yarico 1 well at CPO-5 was also dry. During the rest of 2023 GeoPark will drill the high impact Halcon well at CPO-5 (and potentially another exploration well) and 2-3 exploration wells at LL-123/124. Valuation Our Core NAV is now ~US$18/sh (ReNAV of ~US$26/sh). We forecast that the aggregate free cash flow over 2023-2024 will represent ~50% of the current market cap. The current dividend represents a ~4.5% dividend yield.
• FY22 production and YE22 net debt had been previously reported. • January to February WI production was only ~37 mboe/d, below the production potential of 39,400-40,300 boe/d as the Indico 6 and Indico 7 wells in the CPO-5 block in Colombia continue to be off line until definitive surface facilities are completed. These two wells represent ~2.4-3.3 mbbl/d net to GeoPark, The facilities are now expected to be completed in early 2Q23 according to the operator. Importantly this does not reflect a more stringent attitude of ANH. • In addition, since 28 February, temporary localized blockades have been affecting overall production and operations in the CPO-5 block, which are expected to be normalized within the next few days. • GeoPark is re-iterating its FY23 guidance of 39.5-41.5 mboe/d (excluding any contributions from exploration) but given the low production in January and February FY23 production will be most likely be near the low end of the guidance range. • The FY22 capex was well below the company’s guidance and our expectations (US$169 mm versus our forecast of >US$210 mm). This mostly reflects delays in activities that are now expected to take place in 2023 and are included in the FY23 capex guidance of US$200-220 mm. • We re-iterate our target price of US$28 per share as the lower FY22 capex offsets the lower production and cashflow in 1Q23. Very busy upcoming weeks GeoPark could announce the results of multiple appraisal/exploration wells over the coming weeks. These include Yarico-1 at CPO-5, Tororoi, Picabuey 1 and Zorzal 1 at LLA-87. The results of the Guaco Sur exploration well announced in early February in LLA-34 could open additional drilling locations. Our overall unrisked NAV for the FY23 Colombian exploration programme is ~US$16 per share. Valuation Our Core NAV stands at ~US$17/sh (ReNAV of ~US$27/sh). A key near term catalyst continues to be the Halcon-1 well on CPO-5 investigating the extension of the Llanos-34 play into CPO-5.
• GeoPark has reported YE22 2P reserves of 128.4 mmboe, down from 159.2 mmboe at YE21. This reflects FY22 production of 14.1 mmboe and ~17 mmboe of net negative revisions (technical + economic factors). • Overall 3P reserves have been reduced from 248.3 mmboe at YE21 to 196.3 mmboe at YE22 including ~4 mmboe associated with the divestment of Argentina and ~34 mmboe on technical revisions + economic factors. • In Colombia, the technical/economic factors represent a reduction of ~8 mmboe of 2P reserves and ~35 mmboe of 3P reserves. This reflects the auditor assuming (1) a lower recovery factor at Llanos-34 (38% vs 40% previously) and (2) a tighter delineation of the indico reservoir in CPO-5 field. • The Guaco Sur exploration well at Llanos-34 has been tested at 976 bbl/d of 22 degrees API oil with 11% water cut from the Guadalupe formation. • We have reduced our target price from US$31 to US$28 per share to reflect the reserves update. New reserves estimates too conservative? • The Oil Initially In Place estimate at Llanos-34 has not changed but we note that YE22 2P reserves at Llanos-34 reported by Parex (GeoPark’s partner at Llanos-34) adjusted for respective WI would suggest 2P reserves of 93 mmboe net to GeoPark which is higher than the 88 mmboe 2P reserves attributed to GeoPark by the auditor. This suggests some upside to GeoPark’s 2P reserves for the field. • The Net 2P and 3P reserves at CPO-5 have been reduced from respectively ~20 mmboe and 49 mmboe to ~13 mmboe and 20 mmboe. We assume a production plateau of 25 mbbl/d, which seems a conservative assumption considering strong reservoir performance to date of the Indico field reservoir (hardly any decline and any water production). The FY23 drilling programme will include wells targeting the NW part of the field to investigate the delineation of the field. Valuation Our new Core NAV stands at ~US$18/sh (ReNAV of ~US$28/sh). We continue to forecast that GeoPark will distribute ~US$125 mm to shareholders in 2023 (50% of free cash flow). This represents ~15% of the current market cap or >US$2/sh. The key near term catalyst is the Halcon-1 well on CPO-5 investigating the extension of the Llanos-34 play into CPO-5.
• Two new development wells, Indico 6 and Indico 7, tested over 11,000 bbl/d gross (in aggregate) with hardly any water (Indico 6: 6,270 bbl/d, Indico 7: 5,245 bbl/d). The wells are expected to be tied in later in 1Q23 and put on production at an initial constrained rate of 8 mbbl/d. This would take gross production from the field from ~20 mbbl/d in 4Q22 to 25-27 mbbl/d. • Overall 4Q22 production was 38,433 boe/d, below our expectations of ~40.2 mboe/d as ~1,700 boe/d of net production was deferred due to temporary shut-ins in the CPO-5 block and lower gas demand in the Manati gas field. In addition, ~12 production wells were shut-in at Llanos-34 due to ESP failure. This represents twice the normal failure rate. The service rigs required to change the ESPs could not be used for production enhancement activities, also impacting overall production rates in the block. • Key upcoming catalysts include (1) the imminent drilling of the Yarico exploration prospect located adjacent to Mariposa on CPO-5 and (2) the drilling of a well to test the extension of the plays at Jacana and Tigui (Llanos 34) into CPO-5 planned to mid-2023. • Pending the upcoming publication of the YE22 reserves report, we re-iterate our target price of US$31/sh. Other well results and upcoming drilling The Guaco Sur-1 exploration well at Llanos-34 encountered hydrocarbons in the Guadalupe formation. Testing activities are expected to start in late January. The Tororoi 1 exploration well on Llanos 87 encountered hydrocarbons in the Ubaque, Guadalupe (Barco) and Mirador formations. The Pashuri well (Espejo – Ecuador) is now producing ~400 bbl/d. The Ubaque flowed 0.78 mmcf/d of natural gas and light oil shows with high water cut. GeoPark will now test the Guadalupe and Mirador. GeoPark is currently drilling the Picabuey 1 and Zorzal 1 wells on the same block. The Humea 1 (Llanos 94), Libelula Sur 1 (Platanillo) and Caracara 1 (Espejo – Ecuador) exploration wells were not successful. Valuation, distribution and catalysts The shares continue to trade at a discount to our Core NAV of ~US$21 per share (ReNAV of US$30 per share). We forecast that GeoPark will distribute ~US$125 mm to shareholders in 2023 (50% of free cash flow). This represents ~15% of the current market cap or >US$2 per share. We estimate that the current year exploration programme has an unrisked value of >US$13 per share (150 mmboe gross unrisked resources).
• 3Q22 production had already been reported. Financials were in line with our expectations. • 4Q22 production at Llanos-34 has been impacted by new blockades in mid-October. These are now resolved but are expected to reduce net production by ~230 bbl/d over the quarter. The company has re-iterated its FY22 production guidance of 38.5 40.5 mboe/d. • The Indico-6 development well (CPO-5) is now in production at 4.1 mmbl/d gross rate. GeoPark will now drill Indico-7 that should add further production. • GeoPark plans to spend US$200-220 mm capex (to drill 50-55 new wells) in 2023 to produce 39.5-41.5 mboe/d (excluding any contribution from exploration success). The guidance cautiously includes provisions for downtime and blockades in Colombia. We have trimmed our forecasts from 41.8 mboe/d to 41.2 mboe/d. • The FY23 capex programme includes US$185-210 mm in Colombia and the balance in Ecuador. US$70-80 mm is associated with exploration with 10-15 new exploration wells (3-4 wells at CPO-5). • Even factoring the worst case scenario of an outsized cash tax take in 2023, GeoPark expects to generate up to US$170 mm (Brent of US$100/bbl), which represents >20% of the current market cap. 40 50% of that amount will be distributed to shareholders as dividends and share buyback. A share buyback programme for up to 10%of the outstanding shares has been renewed until YE23. This should provide support to the share price. • We have incorporated the impact of (1) higher corporate tax and (2) lowered production figures in Llanos-34 as from 2024 onwards and adjusted capex down accordingly. Overall we have reduced our target price to US$31/sh. Colombia new fiscal terms The new fiscal terms in Colombia include a 5-15% surcharge to the 35% basic corporate tax rate depending to oil price (no surcharge at BrentUS$82/bbl). Basic royalties are not offsetable anymore. While this applies from 2023 (with tax payable normally in 2024), GeoPark has made the cautious assumption that US$240 mm of cash tax (at US$100/bbl for Brent) would have to be paid in 2023 or early 2024. The payable amount in 2023 could be much less as we estimate that under the current fiscal terms, the cash tax due in 2023 (on FY22 profit) is only ~US$90-100 mm. Valuation and catalysts The shares trade at a discount to our new Core NAV of ~US$21 per share. Our new RENAV is ~US$31 per share. We estimate that the exploration programme until YE23 has an unrisked value of ~US$25 per share (150 mmboe gross unrisked resources).
• 3Q22 production was 38,396 boe/d with blockades affecting CPO-5 production for 10 days and Platanillo for 38 days. 3Q23 WI production at CPO-5 and Platanillo was respectively 5,600 bbl/d and 1,505 bbl/d, down from 6,090 bbl/d and 2,190 bbl/d. The situation is now back to normal and GeoPark’s current production is ~40 mboe/d. The company has re-iterated its FY22 production guidance of 38.5-40.5 mboe/d. • The Indico-6 development well (CPO-5) has been tested at a gross production rate of 3.8 mbbl/d (light oil). GeoPark will now drill the Indico-7 development well. These two wells could add 2 mbbl/d net production by YE22. • Current WI production of 1,500 bbl/d in Ecuador continues to be very strong (1,194 bbl/d in 2Q22). • We have incorporated the impact (1) of the recent exploration drilling results in our valuation and (2) fewer exploration wells at CPO-5 by YE22. Overall we have reduced our target price to US$36/sh. Exploration results The Alea NW-1 exploration well at Platanillo encountered hydrocarbons in the U and N formations. The U formation was tested at 445 bbl/d. This very encouraging result adds to production. The Pashuri-1 exploration well (Ecuador) encountered hydrocarbons in the Napo formation. The well will be tested imminently. At CPO-5, the Cante Flamenco well flowed 170 bbl/d of 15 degree API oil with 90% water cut on test. The Apterix-1 exploration well in the South-eastern part of the licence encountered the Guadalupe formation but the well was dry. Drilling of further wells in this part of the licence has been suspended to conduct further evaluation of the information from the Apterix-1 well. As a result, we anticipate that FY22 capex will be at the low end of the US$200-220 mm guidance. Valuation and catalysts Pending the upcoming announcement of the FY23 budget, we have not changed our production and capex assumptions for 2023. With the outcome of discussions around new fiscal terms in Colombia, our forecasts continue to reflect the current fiscal terms. The shares trade at a significant discount to our new Core NAV of US$24 per share. Our new RENAV is ~US$36 per share. GeoPark is currently drilling the Tororoi-1 exploration well on the Llanos-87 Block and the Humea 1 exploration well on Llanos-94. 1-2 additional exploration wells will be drilled in 4Q22 on Llanos-87. An important well in the north of CPO-5 (near Llanos-34) will also be drilled after Indico-7. This well targets the same productive formation as on Llanos-34. Our total unrisked NAV for the programme is ~US$7 per share.
Share: