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GeoPark Limited Second Quarter 2022 Results

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   |    Thursday,August 11,2022

GeoPark Limited reported its second quarter 2022 results.

2Q Highlights:

Profitable Production Growth

  • Consolidated oil and gas production up 14% to 38,940 boepd (up 2% vs 1Q2022)1
  • Production in Colombia up 16% to 34,253 boepd (up 2% vs 1Q2022)
  • CPO-5 block (GeoPark non-operated, 30% WI) gross production up 77% to 20,300 boepd (up 34% vs 1Q2022)
  • Tigana and Jacana fields in the Llanos 34 block (GeoPark operated, 45% WI) and Indico field in the CPO-5 block, rank among the top 10 oil-producing fields in Colombia2
  • On track to reach 2022 full-year guidance of 38,500-40,500 boepd
Record Revenue, Adjusted EBITDA, Cash Flow and Net Income
  • Revenue up 88% to $311.2 million
  • Adjusted EBITDA up 140% to $144.8 million (including $36.6 million of realized cash hedge losses)
  • Operating Profit of $143.4 million
  • Cash flow from operations up 190% to $123.2 million
  • Net profit of $67.9 million (or $1.13 earnings per share)
Improved Capital and Cost Efficiencies
  • Capital expenditures of $32.4 million
  • Every $1 dollar invested in capital expenditures yielded 4.5x in Adjusted EBITDA (3.7x in 1H2022)
  • G&A costs reduced by 15% to $10.8 million
Fast, Immediate and Aggressive Actions to Minimize Emissions
  • Main fields in Llanos 34 block interconnected to Colombia’s national power grid are fully operational (Tua and Jacana in May 2022, and Tigana in July 2022)
  • The interconnection of Llanos 34 to Colombia’s national power grid (~70% hydroelectric3) is a decisive catalyst to reduce carbon emissions and improve overall operational reliability
  • Solar photovoltaic plant in the Llanos 34 block to be fully operational in 3Q2022
2022 Work Program: Strong Cash Flow Generation
  • Self-funded 2022 capital expenditures program of $200-220 million targets the drilling of 50-55 gross wells, including 18-22 gross exploration/appraisal wells
  • Using a $90-100 per bbl Brent4, GeoPark expects to generate a free cash flow of $250-2805 million, equivalent to a 35-40% free cash flow yield6
  • Free cash flow funding incremental capital projects, significant debt reduction, increased shareholder returns and other corporate purposes
Reducing Debt and Strengthening the Balance Sheet
  • Cash in hand of $122.5 million ($114.1 million as of March 31, 2022)
  • Net leverage of 1.0x (1.5x in March 2022 and 2.5x in June 2021)
  • Reduced gross debt by $1037 million since January 1, 2022 (or $208 million since April 2021), with additional deleveraging expected in 2022 at current market conditions
Returning More Value To Shareholders
  • Board approved a 50% increase in cash dividends to $7.5 million ($0.127 per share) per quarter, payable on September 8, 2022, a 4%8 dividend yield or 11% of net income in 2Q2022
  • Acquired 1.18 million shares, or 2% of total shares outstanding for $15.1 million since January 1, 2022 ($3.0 million in 1Q2022 and $12.1 million from April 1, 2022 to date)
Strengthened Corporate Governance
  • Shareholders re-elected five existing Directors and elected four new Directors at the AGM held on July 15, 2022
  • World-class, well-known oil and gas finders and developers, Brian Maxted and Carlos Macellari join the Board as Independent Directors. Two experienced Executive Directors, Andrés Ocampo and Marcela Vaca also joining, adding significant expertise to GeoPark’s Board of Directors
  • GeoPark’s Board is 66.7% independent
Upcoming Catalysts
  • Drilling 10-12 gross wells in 3Q2022, targeting development, appraisal, and exploration projects in the Llanos and Putumayo basins in Colombia and in the Oriente basin in Ecuador
  • Exploration drilling includes 2-3 wells in Llanos basin, 1-2 wells in the Putumayo basin and 1 well in the Oriente basin in Ecuador
In the CPO-5 block:
  • Initiating production tests in the Cante Flamenco exploration well (located 4 kilometers west of the Urraca 1 exploration well), where preliminary logging information indicated hydrocarbons in the Mirador formation
  • After Cante Flamenco, the drilling rig is expected to move to drill 1-2 development wells in the Indico field to further accelerate production growth
  • A second drilling rig is expected to start spudding wells in the southeastern part of the block in late August/early September 2022

Andrés Ocampo, Chief Executive Officer of GeoPark, said: "Our second quarter can be best characterized by a successful high-momentum transition, our on-the-ground full cycle performance with record results, and a lot of good work and drilling underway opening up even more opportunities for the rest of the year. We are proud of the GeoPark team for ending the first half of the year with: exploration success, production growth, cost discipline, cash flow growth, net profits, significant debt reduction and more value going back to shareholders. We are also just initiating our 2023 capital allocation process - one of our most powerful management tools - by which we rank and select the most attractive value-adding projects from our big and diverse organic portfolio to build another successful program for next year.”

Production

Oil and gas production in 2Q2022 was 38,940 boepd. Adjusting for recent divestments in Argentina, consolidated oil and gas production increased by 14% compared to 2Q2021, due to higher production in Colombia and recent exploration successes in Ecuador, partially offset by lower production in Chile and Brazil.

Oil represented 90% and 85% of total reported production in 2Q2022 and 2Q2021, respectively.

For further details, please refer to the 2Q2022 Operational Update published on July 21, 2022.

Reference and Realized Oil Prices

Brent crude oil prices averaged $111.5 per bbl during 2Q2022, and the consolidated realized oil sales price averaged $98.7 per bbl in 2Q2022.

  • Colombia: 2Q2022 oil revenue increased by 97% to $287.9 million, reflecting higher realized oil prices and higher oil deliveries. Realized prices increased by 73% to $98.5 per bbl due to higher Brent oil prices while oil deliveries increased by 13% to 33,146 bopd. Earn-out payments increased to $9.1 million in 2Q2022, compared to $6.0 million in 2Q2021 in line with higher oil prices.
  • Chile: 2Q2022 oil revenue increased by 344% to $5.2 million, reflecting higher realized prices and higher oil deliveries. Realized prices increased by 76% to $106.5 per bbl due to higher Brent oil prices while oil deliveries increased by 152% to 533 bopd.
  • Ecuador: 2Q2022 oil revenue totaled $3.1 million, reflecting a realized oil price of $108.8 with deliveries of 312 bopd. Deliveries recorded in Ecuador are net of the Government’s production share.

Oil Sales

2Q2022 sales of purchased crude oil totaled $5.4 million, which corresponds to oil trading operations (purchasing and selling crude oil from third parties with the cost of the oil purchased being reflected in production and operating costs).

  • Chile: 2Q2022 gas revenue decreased by 23% to $3.4 million, reflecting lower gas deliveries, partially offset by higher gas prices. Gas deliveries fell by 24% to 10,186 mcfpd (1,698 boepd). Gas prices were 2% higher, at $3.7 per mcf ($22.3 per boe) in 2Q2022.
  • Brazil: 2Q2022 gas revenue decreased by 1% to $5.5 million, due to lower gas deliveries, partially offset by higher gas prices. Gas deliveries decreased by 19% from the Manati gas field to 9,152 mcfpd (1,525 boepd). Gas prices increased by 21% to $6.6 per mcf ($39.6 per boe) in 2Q2022.

Commodity Risk Management Contracts

Consolidated commodity risk management contracts amounted to a $15.5 million loss in 2Q2022, compared to a $47.7 million loss in 2Q2021.

The realized portion registered a loss of $36.6 million in 2Q2022 compared to a $35.7 million loss in 2Q2021. Realized losses in 2Q2022 reflected hedges with average ceiling prices below actual Brent oil prices during the quarter.

The unrealized portion registered a gain of $21.1 million in 2Q2022, compared to a $12.0 million loss in 2Q2021. Unrealized gains in 2Q2022 mainly resulted from reclassifications to realized losses, combined with movements in the forward Brent oil price curve at June 30, 2022, compared to March 31, 2022.

Production and Operating Costs

Consolidated production and operating costs increased to $115.1 million from $53.0 million, mainly resulting from a $58.1 million increase in royalties in cash, due to higher oil and gas prices.

Consolidated royalties in cash amounted to $82.8 million in 2Q2022 compared to $24.6 million in 2Q2021, in line with higher oil prices. Royalties in cash included base royalties ($18.8 million and $9.4 million in 2Q2022 and 2Q2021), high price participation ($49.4 million and $9.4 million in 2Q2022 and 2Q2021), and economic rights ($14.6 million and $5.8 million in 2Q2022 and 2Q2021).

Consolidated operating costs decreased to $27.4 million in 2Q2022 compared to $28.3 million in 2Q2021. The decrease in consolidated operating costs results from the divestment of assets in Argentina (2Q2021 included $3.1 million related to operating costs in the Aguada Baguales, El Porvenir and Puesto Touquet blocks that were divested in January 2022), partially offset by higher operating costs in Colombia and Chile, and the addition of operating costs coming from Ecuador.

The breakdown of operating costs is as follows:
  • Colombia: Total operating costs increased to $21.4 million in 2Q2022 from $21.0 million in 2Q2021, mainly due to higher deliveries (deliveries in Colombia increased by 13%).
  • Chile: Total operating costs increased to $4.4 million in 2Q2022 from $3.3 million in 2Q2021, in line with higher operating costs per boe due to higher well maintenance costs, partially offset by lower oil and gas deliveries (deliveries in Chile decreased by 9%).
  • Brazil: Total operating costs decreased to $0.8 million in 2Q2022 from $0.9 million in 2Q2021, due to lower gas deliveries in the Manati field (deliveries in Brazil decreased by 19%), partially offset by higher operating costs per boe.
  • Ecuador: Operating costs per boe amounted to $32.711 in 2Q2022. Total operating costs were $0.9 million in 2Q2022.
  • Argentina: The divestment of the Aguada Baguales, El Porvenir and Puesto Touquet blocks was completed in January 2022. The comparative period, 2Q2021, included $3.1 million in operating costs.

Consolidated purchased crude oil charges amounted to $4.4 million in 2Q2022,which corresponds to oil trading operations (purchasing and selling crude oil from third parties with the sale of purchased oil being reflected in revenue).

Selling Expenses: Consolidated selling expenses decreased to $1.2 million in 2Q2022 compared to $1.8 million in 2Q2021.

Geological & Geophysical Expenses: Consolidated G&G expenses increased to $3.0 million in 2Q2022 compared to $2.1 million in 2Q2021.

Administrative Expenses: Consolidated G&A decreased to $10.8 million in 2Q2022 compared to $12.7 million in 2Q2021 due to lower staff costs, consultant fees and communication and other costs.

Adjusted EBITDA: Consolidated Adjusted EBITDA12 increased by 140% to $144.8 million, or $41.9 per boe, in 2Q2022 compared to $60.5 million, or $18.5 per boe, in 2Q2021.

Depreciation: Consolidated depreciation charges increased by 13% to $23.2 million in 2Q2022 compared to $20.6 million in 2Q2021, in line with higher deliveries.

Other Income (Expenses): Other operating expenses showed a $0.9 million gain in 2Q2022, compared to a $0.4 million loss in 2Q2021.


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