GeoPark Limited (NYSE:GPRK) Q1 2023 Earnings Call Transcript

GeoPark Limited (NYSE:GPRK) Q1 2023 Earnings Call Transcript May 6, 2023

Operator: Good morning, and welcome to the GeoPark Limited conference call following the results announcement for the first quarter ended March 31, 2023. [Operator Instructions]. If you do not have the copy of the press release, it is available at the Invest With Us section of the company’s corporate website at www.geo-park.com. A replay of today’s call may be accessed through this 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 facts 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 U.S. dollars unless otherwise noted. Reserve figures corresponding to PRMS standards. On the call today from GeoPark is Andrés Ocampo, Chief Executive Officer; Veronica Davila, Chief Financial Officer; Augusto Zubillaga, Chief Technical Officer; Martin Terrado, Chief Operating Officer; and Stacy Steimel, Share Value Director.

And now I’ll turn the call over to Mr. Andrés Ocampo, Mr. Ocampo, you may begin.

Andrés Ocampo: Good morning, and welcome, everyone, to our first quarter results call. We’re joining with our team here in Bogota, where we just celebrated our 10th anniversary in Colombia and our 20th year as a company. We’re proud of our accomplishments so far. Today, we are the second largest operator in Colombia with about 8% of the country’s oil production and are excited about the future in Colombia and in Latin America as well. . During the first quarter, we suffered some temporary production shortages, particularly in CPO-5 due to matters that are beyond our control. We lost approximately 2,400 barrels a day of production from Indico-6 and Indico-7 wells and have been working on assisting the operator to get those 2 wells back online as soon as possible.

As a result of these shortages, and as previously announced, with the operator’s new expectation that these wells may not be back online before July, we had to revise our full year production guidance down to 38 — a range of 38,000 to 40,000 barrels a day. Despite these challenges, we were able to adapt quickly streamline our capital allocation and continue reducing our cost base to maintain our cash flow generation guidance. And following that, maintain our shareholder return program unchanged. During the first quarter, we invested $45 million to drill 12 wells, all in Colombia, including wells in new exploration acreage in the Llanos 87 block and the successful drilling of the first horizontal well in the Tigana field in our core Llanos 34 block.

This first horizontal well was a great success, executed within budget and within time and now flowing about 3,000 barrels a day with barely no water. In less than 2 months, the well has accumulated 50% of the production needed to recover the investment, encouraging our team to define multiple new drilling locations going forward. Next one is expected to spud in June. The base business continues generating solid financial results with revenue topping about $182 million and an adjusted EBITDA of almost $115 million, a 63% EBITDA margin. Cost and capital efficiencies were a highlight of the quarter once again. And despite inflationary pressures, we were able to reduce our cost, our structured cost, G&A and G&G by 6% compared to the first quarter last year.

Every dollar invested generated $2.50 in adjusted EBITDA, which showed both the efficiency of our capital investments and 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 profits or $0.45 per share during this quarter. Following our debt reduction of $275 million during the last 2 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 leverage ratio of just 0.7x. We continue to deliver on our increased program to return more value to shareholders. Share buybacks increased by 142% to $7.5 million and cash dividends increased by 55% to $7.5 million, approximately a 5% dividend yield.

On April 26, GeoPark 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 midterm goals as well as the positive impact that we were able to have on 240,000 people that benefited from the company’s social and environmental programs in 2022. Looking forward, we’re executing the multiyear drilling program in our core and surrounding blocks in the Llanos basin. For the remainder of 2023, we’re targeting the drilling of 6 to 8 exploration wells, including exploration prospects in the Llanos 123, 124 and CPO-5 blocks in addition to continue developing our core asset base. We look forward to reporting results on these activities in the upcoming quarters.

Thank you, and we will be happy to answer your questions.

Q&A Session

Operator: [Operator Instructions]. Our first question comes from the line of Stephane Foucaud of Auctus Advisors.

Operator: Our next question comes from the line of Alex Demichelis of Nau Securities.

Operator: Our next question comes from the line of [indiscernible].

Operator: Our next question comes from the line of Roman Rossi of Canaccord.

Operator: Our next question comes from the line of Phil Skolnick of Eight capital.

Operator: So our next question is a tech question. And it’s from the line of Andrew De Luca of T. Rowe Price. And it says, on horizontal drilling, can you please let us know how many additional horizontal wells do you plan to drill? What is the CapEx associated with the horizontal well, lifting costs increased in Q1? Can you please specify what drove the increase and where you see this in 2023?

Operator: As there are no additional questions at this time, I will hand the conference back over to Mr. Andrés Ocampo for closing remarks.

Andrés Ocampo: Thank you, everybody, for your interest in and support of GeoPark, and we’re always available to answer any questions you may have. We encourage you to please visit us and our operations and call us any time for more information. Thank you, and have a good day.

Operator: Ladies and gentlemen, this concludes the GeoPark First Quarter 2022 Results Conference Call. Have a great day ahead. You may now disconnect.