Exploration & Production | Top Story | Quarterly / Earnings Reports | Production | Third Quarter (3Q) Update
GeoPark's Colombian Ops Strengthen; Production Increased 68%
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GeoPark Ltd. has reported its third quarter 2014 update.
Operational Highlights:
- Total oil and gas production up 66% to 21,548 boepd compared to 3Q2013
- Oil production in Colombia up 68% to 11,934 boepd
- Reserves up in Tigana oil field in Colombia (GeoPark operated with 45% working interest) to 140-170 mmbo OOIP and 45-65 mmbo of 3P reserves (PRMS gross) by internal estimates
- 13 new exploration, development and appraisal wells were drilled in Chile and Colombia
Financial Highlights:
- Net Revenues up 47% to $131.8 million compared to 3Q2013, driven by increased production
- Adjusted EBITDA up 62% to $67.9 million from increased revenue and efficiency gains
- Adjusted EBITDA per boe up 3% to $36.0 (in 5% lower oil price environment)
- Operating Netback reached $43.5 per boe
- Profit up 9% to $11.9 million
- Cash position of $128.8 million at the close of 3Q2014
Strategic / New Business:
- Entry to Peru (GeoPark's fifth country platform in Latin America) in October 2014 through the acquisition of the Morona Block (GeoPark will operate with a 75% WI) in a joint venture with Petroperu, the Peruvian state-owned oil and gas company. The Morona Block includes a discovered oil field (55 million 2P PRMS reserves certified by Ryder Scott) and attractive high impact exploration potential (200 to 600 million barrels of exploration resources).
- Expansion of Colombian asset portfolio in November 2014 through a farm-in with the SK Group for the CPO-4 Block in Llanos Basin (GeoPark will operate with a 50% WI).
James F. Park, GeoPark Chief Executive Officer, said, "Another strong quarter on our way to a successful year of operational, financial and business growth. GeoPark's consistent year-to-year growth performance confirms the strength of our long term risk-balanced multi-country strategy in Latin America. It also positions us to continue to prosper even in a declining oil price environment – with our high netback projects, discretional work programs, strong balance sheet, and self-funding production base of 21,000 boepd. Our exploration and drilling efforts continue to produce results – most importantly with the Tigana oil field and reserve expansion in Colombia, and Tigana's conversion into a low risk high potential production growth platform. We are also excited about our entry into Peru with the acquisition of the Morona Block with its high impact discovered Situche Central oil field and big exploration potential – and which adds further value and depth to GeoPark's significant organic inventory of development and exploration opportunities over our 31 blocks and 6 million acres."
Third Quarter Summary
The table below sets forth GeoPark's production figures for 3Q2014 compared with 3Q2013.
Operating Performance
Production: Consolidated production increased by 66% in 3Q2014 to 21,548 boepd. This growth is explained by (i) a 41% increase in consolidated oil production, primarily from higher oil production in the Colombian operations, and (ii) a 218% increase in gas production mainly due to the addition of the Brazilian operations. On a proforma basis, consolidated average production grew 29% in 3Q2014. (Proforma figures in this release refer to the incorporation in both periods of the acquired interest in the Brazilian Manati Field, which closed on March 31, 2014.)
Net Revenues: Consolidated net revenues increased by 47% to $131.8 million in 3Q2014 compared to $89.7 million in 3Q2013, mainly driven by increased oil production.
Consolidated Oil Revenues: Consolidated oil revenues increased 31% to $111.6 million in 3Q2014 compared to 3Q2013, representing 86% of total net revenues compared to 95% in 3Q2013. Growth in net oil revenues is mainly explained by higher production in Colombia, partially offset by lower production in Chile and a 5% decrease in the consolidated average realized oil price to $82.3 per barrel.
Consolidated Gas Revenues: Consolidated gas revenues increased by 368% to $20.2 million in 3Q2014 compared to $4.3 million in 3Q2013, representing 14% of total net revenues in 3Q2014 compared to 5% in 3Q2013, and was mainly explained by the addition of the Brazilian operations along with higher average gas prices in Chile.
Costs: Consolidated production costs increased by 39% to $67.5 million in 3Q2014, due to higher production and deliveries in Colombia as well as the addition of the Brazilian operations.
Consolidated exploration costs increased to $3.4 million in 3Q2014 from $2.4 million in 3Q2013.
Consolidated administrative costs increased by 21% to $13.7 million in 3Q2014, mostly due to the addition of the Brazilian operations.
Consolidated selling expenses increased to $9.3 million in 3Q2014 from $4.9 million in 3Q2013, driven by increased selling expenses from increased production and deliveries in Colombia.
Adjusted EBITDA: Consolidated Adjusted EBITDA increased by 62% to $67.9 million in 3Q2014 compared to $41.9 million in 3Q2013, mainly due to increased Adjusted EBITDA in the Colombian operations from higher production, the addition of the Brazilian operations, as well as increased Adjusted EBITDA from Chilean operations.
Adjusted EBITDA per boe increased by 3% to $36.0 per boe in 3Q2014 compared to $34.9 per boe in 3Q2013, despite a lower reference price for oil, mainly due to lower operating costs in Colombia, which were partially offset by a higher proportion of gas revenues from the acquisition of the Brazilian operations in March 2014.
Colombia Operations
Production: Colombian oil production increased by 68% to 11,934 bopd in 3Q2014 compared to 3Q2013, explained by new production from the Tigana oil field in the Llanos 34 Block (GeoPark operated with a 45% WI).
Net Revenues: Colombian revenues increased by 48% to $78.3 in 3Q2014 mainly due to increased production and deliveries, and partially offset by an increase in earn-out expenses. Colombian operations represented 59% of the total consolidated net revenues in both 3Q2014 and 3Q2013.
The average realized oil price decreased by 7% to $79.0 per barrel in 3Q2014, which was mainly related to a lower reference price of approximately 6% and higher quality discounts, partially offset by increased deliveries made through pipelines at higher realization prices.
Earn-out expenses, as provided for in the Winchester purchase agreement and which are net of revenues, increased to $7.6 million in 3Q2014 compared to $3.1 million in 3Q2013, mainly due to higher production in the Llanos 34 Block.
Costs: Production costs per barrel decreased by 34% to $36.4 per barrel in Colombia mainly due to improved fixed cost absorption and cost efficiencies. Total production costs increased by 20% to $39.6 million in 3Q2014, at a lower rate than revenue growth. Operating costs per boe decreased by 41% to $19.8 per boe, mainly due to improved fixed cost absorption and cost efficiencies. Operating costs in 3Q2014 increased by 6% to $21.5 million compared to $20.2 million in 3Q2013, mainly due to increased production and deliveries.
Exploration expenses in Colombia amounted to $2.1 million in 3Q2014 compared to $0.8 million in 3Q2013.
Administrative costs in Colombia in 3Q2014 decreased to $3.5 million compared to $4.7 million in 3Q2013.
Selling expenses in Colombia in 3Q2014 increased to $5.6 million compared to $3.8 million in 3Q2013, principally driven by the increase in production and deliveries, of which a higher proportion was sold by pipelines at a higher realized price and with higher associated selling expenses.
Adjusted EBITDA: Adjusted EBITDA in Colombia increased by 86% to $42.0 million in 3Q2014 compared to $22.6 million in 3Q2013, mainly due to higher oil production and deliveries.
Adjusted EBITDA per boe increased by 2% to $38.6 per boe in 3Q2014, mainly due to lower operating costs per boe resulting from increased efficiency, which were partially offset by lower reference prices and higher earn-out payments.
Operational Performance
During 3Q2014, in the Llanos 34 Block (GeoPark operated with a 45% WI), the Tigana Sur Oeste 1 and Tigana Sur 2 wells were successfully tested and put on production.
In October 2014, GeoPark disclosed internal estimates for the Tigana oil field of approximately 140 – 170 mmbo OOIP and 3P PRMS gross reserves of 45–65 mmbo. The Company has installed facilities and infrastructure to handle approximately 20,000 barrels of fluid per day ("bfpd") (with plans underway to expand to 100,000 bfpd).
Further details were provided in the recent release of October 21, 2014 and October 29, 2014.
Chile Operations
Production: Production in Chile increased by 3% to 5,994 boepd in 3Q2014 compared to 5,829 boepd in 3Q2013, mainly due to 26% higher gas production together with 8% lower oil production, resulting mainly from the natural decline in base production.
Average production in Fell Block amounted to 5,752 boepd during 3Q2014, representing 96% of GeoPark's Chilean production, with the remaining production coming from GeoPark's Tierra del Fuego blocks.
Net Revenues: Net revenues in Chile increased by 3% to $37.7 million for 3Q2014, representing 29% of consolidated net revenues, compared to $36.5 million, or 41% of consolidated net revenues in 3Q2013.
Oil revenues decreased by 2% to $31.6 million in 3Q2014 due to lower production.
The average realized oil price increased 1% to $90 per barrel in 3Q2014. The Company's new oil treatment facilities allowed for quality improvements and lower price discounts, which fully offset the reduction of $8 per barrel in the reference price as compared to 3Q2013.
Oil revenues represented 84% of total net revenues in Chile in 3Q2014 compared to 88% in 3Q2013.
Gas revenues increased by 42% to $6.1 million in 3Q2014. The increase was mainly due to the 44% increase in the average realized gas price resulting from (i) an improved agreement with the Fell Block gas purchaser, Methanex, and, to a lesser extent, due to (ii) new gas deliveries from recent discoveries in the Tierra del Fuego blocks, which are sold at higher prices. Gas revenues represented 16% of total net revenues in Chile in 3Q2014 compared to 12% in 3Q2013.
As a reference, Methanex, GeoPark's principal gas buyer, temporarily idled its plant from May until September 2014 due to an insufficient supply of natural gas from its other suppliers. Chilean gas revenues represented 5% of consolidated revenues in 3Q2014.
Costs: Production costs in Chile in 3Q2014 increased by 29% to $20.8 million, resulting in a 31% increase in production costs per boe to $42.0. This was mostly due to higher depreciation charges per boe and the impact on fixed costs from lower oil production, the startup of the Tierra del Fuego Blocks and, to a lesser extent, higher costs from the operation of electrical submersible pumps and from chemical treatments to improve oil quality. Additionally, operating costs increased by 19% to $10.2 million in 3Q2014 from $8.6 million in 3Q2013 while operating costs per boe increased by 21% to $20.7.
Exploration expenses in Chile amounted to $0.7 million in 3Q2014 compared to $0.6 million in 3Q2013.
Administrative costs in Chile decreased to $3.9 million in 3Q2014 compared to $4.0 million in 3Q2013. Selling expenses in Chile decreased to $0.8 million in 3Q2014 from $0.9 million in 3Q2013.
Adjusted EBITDA: Adjusted EBITDA in Chile decreased by 5% to $20.2 million in 3Q2014, compared to $21.3 million in 3Q2013, mainly due to increased operating costs, partially offset by higher revenues.
Adjusted EBITDA per boe increased by 3% to $40.8 per boe in 3Q2014 compared to $39.5 per boe in 3Q2013.
Operational Performance
During 3Q2014, the Company advanced its exploration and development work program with the drilling of five wells in the Fell Block (GeoPark operated with a 100% WI), and the drilling of two wells in the Campanario Block (GeoPark operated with a 50% WI). Following the drilling program in the Tierra del Fuego blocks, GeoPark and its partner ENAP have declared commerciality on seven new fields, allowing the development phase to begin.
Further details were provided in the recent Operations Update release of October 21, 2014.
Operations in Brazil
Production: Production for the Brazilian operations averaged 3,536 boepd in 3Q2014, composed of approximately 98% gas and 2% condensate.
Net Revenues: The Brazilian operations represented 12% of the total consolidated net revenues in 3Q2014, and amounted to $15.3 million. The average gas price, net of taxes, amounted to $7.9 per mcf ($47.5 per boe) in 3Q2014.
Costs: Production costs in Brazil were $6.6 million in 3Q2014, reflecting production costs per boe of $22.1. In addition, operating costs per boe amounted to $5.4.
Adjusted EBITDA: Adjusted EBITDA in Brazil reached $8.3 million in 3Q2014, representing 12% of consolidated Adjusted EBITDA. Adjusted EBITDA per boe was $27.6 in 3Q2014.
Operational Performance
During 3Q2014, Petrobras, the operator of the Brazilian Manati Field, continued the construction of a compression plant that is expected to commence operations in 2H2015. The plant is expected to maximize the recovery of the gas reserves of the Manati Field, and offset the natural production decline.
Also in 3Q2014, GeoPark initiated seismic registration in the Reconcavo basin, and topographic surveys in the Potiguar basin, both part of the Round 11 blocks obtained in 2013 (GeoPark operated with 100% WI). The seismic program is expected to be completed by 4Q2014 with drilling expected to begin in 2H2015.
Further details were provided in the recent Operations Update release of October 21, 2014.
Operations in Argentina
Operations in Argentina represented approximately 1% of consolidated net revenues and Adjusted EBITDA, respectively in both 3Q2014 and 3Q2013.
Financial Results
Net Financial Expenses: Net financial expenses increased to $20.6 million in 3Q2014 from $6.6 million in 3Q2013, mainly resulting from $13.9 million non-cash exchange rate losses resulting from the impact of the depreciation of the Brazilian Reais in 3Q2014 over dollar-denominated net debt taken at the local subsidiary level, where the functional currency is the Brazilian Reais. Additionally, consolidated net financial expenses were impacted by higher average indebtedness as a result of the credit facility of $70.5 million obtained on March 31, 2014 to acquire the interest in the Brazilian Manati Field. The above-mentioned effects were partially offset by higher financial income resulting from higher cash and cash equivalents position (including net proceeds resulting from the NYSE IPO in February 2014).
Income Tax: Income tax amounted to $6.2 million in 3Q2014 compared to $5.2 million in 3Q2013, in line with the increase in profits before income taxes in 3Q2014.
Profit: Profit for the period increased 9% and amounted to $11.9 million in 3Q2014 compared to $11.0 million in 3Q2013, mainly due to higher operating income partially offset by higher net financial expenses, and higher income taxes.