GeoPark Ltd (GPRK) 2018 Q2 法說會逐字稿

Good morning, and welcome to the GeoPark Limited conference call following the results announcement for the second quarter ended June 30, 2018. (Operator Instructions) If you do not have a copy of the press release, please call Sard Verbinnen & Co. in New York at +1 (212) 687-8080, and we will have one sent to you.

Alternatively, you may obtain a copy of the release at the Investor Support section on the company's corporate website at www.geo-park.com.

A replay of today's call may be accessed through this webcast in the Investor Support section of 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 correspond to the PRMS standards. On the call today from GeoPark is James F. Park, Chief Executive Officer; Augusto Zubillaga, Chief Operating Officer; Andrés Ocampo, Chief Financial Officer; and Stacy Steimel, Shareholder Value Director.

And now I'll turn the call over to Mr. James Park. Mr. Park, you may begin.

Thank you, and welcome to our 2018 second quarter results conference call where we are participating with our executive team from Bogotá, Colombia.

GeoPark is delivering up-and-down and across the Board. In the subsurface, in the field, in the neighborhood, on the top and bottom lines, on the balance sheet, in the market and expanding our platform, so we can do even more.

Some highlights from last quarter. In the subsurface. Our active drilling program discovered 2 new oilfields in Colombia, Tigui and Chachalaca Sur and a healthy chunk of new oil reserves in Tigana Norte in Colombia.

In the field, oil and gas production increased 37% to a record 35,870 barrels per day, which includes a seamless operational takeover of 3 new producing blocks in Argentina.

And our team is keeping its discipline to push down costs with the Llanos 34 operating cost under $4 per barrel.

In the neighborhood, the United Nations, Colombian Ministry of Energy, and the ANH awarded GeoPark for the best social and community practices in Colombia.

On the top and bottom lines, we had record revenues of $159 million, record EBITDA of $83 million and a positive net income.

On the balance sheet, we delivered from nearly 5x 2 years ago to just a comfortable 1.3x net debt-to-EBITDA. And after self-funding $36 million of CapEx this quarter, we have a good $105 million cash cushion.

In the market, we are trading more shares every day with our daily trading amount climbing from $1 million at the end of last year to over $8 million in June, as well as GeoPark passing the $1 billion market cap milestone.

Expanding to do more, building on our unique regional Latin American platform, we were able to add over 350,000 new high-potential underexplored acres in the Neuquen basin in Argentina, with our partners YPF at no upfront cost.

And what's coming? With our better-than-expected results, we've stepped up our work program to be moving at full speed with some good catalysts on the way, with 5 drilling rigs operating in 3 countries, in Colombia, Argentina and Chile. And meaning, we'll be working harder and investing more in the second half to find and produce more oil and gas, make more money and continue building a better company for our shareholders.

Thank you. And we'll be pleased to answer any questions.

(Operator Instructions) Your first question comes from the line of Ian Macqueen of Eight Capital.

Just one quick question. With respect to the LGI interest, I believe, it was still at 20% in Q2. Can you give us a timeline for the reduction to 16%? And ultimately to 12%?

We are -- let me put it this way, the earnings, for us, to [increase] the 4%, have been accrued already. The dilution mechanism is triggered under realized cash dividends. So we've paid dividend worth $1 below triggering the threshold. And in parallel with that, we're working with LG to design the implementation.

This is going to be the first time that we actually trigger the clause. We need to rethink how we are going to do that dilution mechanism.

So we're working with them in parallel before paying those dividends from the subsidiary up.

The timeline is, we're working on it right now. We were expecting to have it implemented by this quarter already. There were some delays because of difficulties with some accounting and tax issues in Korea, and we are working with them and we will have it in place very soon.

Following that, the cash flows under D&M are showing us that we will go from the initial 84%, up to the 92%, that is the maximum that we can increase under this clause within the next 2 years -- 2 to 3 years.

Okay. So does that mean -- is that Q4 event or is it just soon as possible? But for modeling purposes, should I assume it's a Q4 event or a Q3 event on the '16? And right now in my model, I've got Q3 of '19 for 12%.

Okay. Well, from an economic perspective, it shouldn't change your model. The value is the same. The timing of the transfer, it doesn't change given that it's triggered by dividends, and we can share with you some of the calculations we make.

Really, the economic essence of the item, it doesn't change. What changes is the accounting mechanism. But the reality, the ownership of the value remains the same whether we believe under Q3 or Q4, that doesn't really change.

In any case, the timing is definitely before the end of the year. Hopefully, within the third quarter, let me put it that way

(Operator Instructions) Your next question comes from the line of Leonardo Marcondes of Itaú.

Just a quick question from my end. Could you give us an update of your current situation at the block 64 in Peru ?

Thank you, Leonardo. Yes. Currently, our team -- a few weeks ago, our team filed finally the environmental impact study which is the necessary item for us to start working and operating on the asset. That was filed a few weeks ago.

The expectation is for us -- we are working with the regulatory entities currently, going back and forth, making clarifications on the document. Our expectation is to have approval of this environmental impact study. Hopefully, before the end of the year, if not, it's definitely -- it's first quarter next year.

Your next question comes from the line of Joel Musante of Alliance Global Partners.

I just had a question with all the success you've had, operationally and with your stock price, you look like you are probably in a really good position to make an acquisition at this point, and I know you've been looking for different properties.

So I was hoping you could give us an update on what the acquisition market looks like for you at this point?

Joel, thank you for your question. We -- well as you know, our 3 basic parameters or strength under which or around which we build our company are to be an explorer, operator and consolidator.

So really, searching and looking for good opportunities is an ongoing process, and it is something that we do continuously. It is a big component of our company, and we keep ourselves very busy on that front and we're working and screening a lot of opportunities throughout this region. And hopefully, we will be able to close one soon.

As you know, we're long-term patient, conservative buyers. So we really don't rush into acquisitions. We really close on the ones what we -- that we think they really make sense, we just did 2, maybe smaller acquisitions, but we just closed on 2 acquisition in Argentina this year.

The 3 new assets that are producing on the Neuquen basin and the new large acreage in the same basin in partnership with the YPF.

Does your relationship with the Indian national oil company give you sort of more bandwidth in terms of size of acquisitions? Or I'm not sure how that relationship works. So you can speak to that.

Yes, you see, it's a strategic alliance, and we're jointly working with them on a number of this -- evaluating these acquisition opportunities.

And yes, effectively, they are good -- great oil and gas company, very large oil and gas company that is looking to grow.

They partnered with us, leveraging, with our operating skills. And yes, I mean, given the size of ONGC, it really opens up a much bigger number of opportunities and even larger type of opportunities.

With this partnership, we are effectively not really limited by size, in terms of the opportunities that we look for.

Next question comes from line of Shahin Amini of Pareto Securities.

Two questions. One a point on the cost, what I think is kind of important to get a better feel.

On your consolidated OpEx, it stepped up from compared to Q1, I think that was mainly on the back of Argentina. I'm just wondering, if you could elaborate further how we should be thinking about that -- those cost over the coming quarters?

And ask you to provide more color on how you see those operations developing the next year or so? And I think, your personnel cost also steps up from the previous quarter. Is that sort of now peaking or could it continue to rise?

And I suppose, from the previous caller, who had a question about acquisitions, I'm just wondering, what is the scope for you to be perhaps divesting certain assets that are becoming noncore to your portfolio?

Shahin, thank you for your questions. Sorry, I'm writing them down. So for your question about cost, as you pointed out, yes, I mean, the step up that you see it's around $1, $1.05 per barrel on a consolidated basis, that's coming mainly from the -- this is the first quarter that we start consolidating the asset that we acquired with production in Argentina.

The cost of oil in those assets currently it's around $26, $27 per barrel, the OpEx, and we expect those to start coming down as we're taking over the assets. We have now our team working on these costs, so we expect them to start coming down as of the third quarter this year and onwards, both on the cost reduction side and also on the -- hopefully, production increases side.

We are currently -- we are moving a [full in] rig there to test the very attractive tight gas opportunity, which is a well that was drilled by the previous operator that [tested] roughly 100,000 cubic meters a day for a period of 2 months, and now it's shut-in.

This is not factored in our reserves or in our calculations but provide the opportunity to open up a 50 to 60 bcf tight gas field right there within our blocks.

So exciting opportunity. And that rig is going to move to do some work over -- some [over work] to bring them on production and improve the water flooding on the field. So hopefully, that is going to be improving the production profile in the field and also absorbing some costs.

And then, your other question was about -- the divestitures, sorry. So yes, definitely -- as we continue growing and as we continue bringing more assets into our company, we're actively considering working on potential divestitures on assets that are noncore or that are not really part of our key strategy or main focus. That's always part of what we do.

Very good. But it was also, I think, as part of your G&A, the personnel cost had gone up, if I recall correctly, compared to your previous quarter. I mean, obviously, you're growing and you got Argentina, is that something that you can see increasing over the coming quarters? Or has it kind of peaked?

Well, we don't expect big increases on our structural cost, going forward. We added a few more people in some of the countries where we are growing, but they must -- the new added assets in Argentina. But really, we're not expecting that to grow. We are -- as you know, we're investing in our human capital for the long term, and we think -- we look at this -- particularly, the G&G line of the G&A cost line, more as an investment really than a cost.

But we're not expecting big increases in that area.

Just a very quick follow-on from the Argentina question I had. Just what percentage of those costs are in the local currency? And in terms of managing U.S. dollar-local currency fluctuations, is that something that you need to actively manage? Or is it just come -- it's not a major issue as it currently stands?

Yes. The -- well, we're on the right side in terms of currency exposure in Argentina because the 50% of our cost -- roughly 50% of our cost is in local currency and 100% of our revenues are dollar denominated. So effectively, the most recent devaluation is going to dilute a portion of our cost locally, and it's going to be part of the other cost reductions that you should expect to see over the next quarters.

Right. But the inflation is going to eat into that, right? As well, cost inflations would be quite steep, I expect?

Yes. Inflation on cost is also done on -- I mean it's also on the local currency. But usually, in Argentina, the devaluation has been winning to inflation. So devaluation has been higher than inflation in -- for most periods.

I'll now return the call to Mr. James Park for any additional or closing remarks.

Thank you to everybody for your interest in GeoPark and your continued support of our company. We encourage you to please visit us at our operations, and invite you to please call us at any time for any information. Thank you. And good day.

Thank you. That does conclude today's conference call. You may now disconnect.