GeoPark Limited — FY2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018; the filing is an annual report, not a standalone fourth-quarter report. Accordingly, it does not provide clear Q4-only financial results. GeoPark is a Latin American oil and gas exploration and production company operating in Colombia, Chile, Brazil, Argentina and Peru. Its audited consolidated financial statements are prepared under IFRS in U.S. dollars.
Key financial and operating metrics
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | US$601.2 million | US$330.1 million |
| Operating profit | US$256.5 million | US$79.0 million |
| Profit (loss) for the year | US$102.7 million | (US$17.8 million) |
| Profit (loss) attributable to GeoPark owners | US$72.4 million | (US$24.2 million) |
| Adjusted EBITDA | US$330.6 million | US$175.8 million |
| Adjusted EBITDA margin | 55.0% | 53.2% |
| Cash from operating activities | US$256.2 million | US$142.2 million |
| Capital expenditures | US$124.7 million | US$105.6 million |
| Average net production | 36,027 boepd | 27,586 boepd |
Revenue was 91% oil and 9% gas. Oil sales rose to US$545.5 million from US$279.2 million, reflecting higher realized prices and volumes; gas sales were US$55.7 million. The company reported a 42.7% operating margin and a 17.1% consolidated net margin, calculated from reported figures. Adjusted EBITDA is a non-IFRS measure and should not be treated as cash flow or IFRS profit.
At year-end, cash and cash equivalents were US$127.7 million, versus US$134.8 million. Current assets were US$259.6 million and current liabilities US$218.4 million, implying working capital of about US$41.2 million. Total borrowings were US$447.0 million; net debt was US$319.3 million. The principal debt is US$425 million of 6.50% senior notes due 2024; a Brazilian real-denominated Santander loan of about US$20 million matures in 2020. The company reported a 69% gearing ratio and stated it was in compliance with indenture provisions. No cash dividends have been paid or are expected in the foreseeable future.
Net proved reserves were 108.4 mmboe, up from 95.7 mmboe at year-end 2017; 38% were developed. Colombia generated 83% of revenue and averaged 28.4 mboepd, about 79% of company production. Llanos 34 accounted for 67% of proved reserves and 76% of production, concentrating asset and operating exposure.
Material changes versus FY2017
- Revenue increased 82%, average production rose 31%, and oil realized sales prices increased to US$53.0/bbl from US$36.6/bbl. Average gas realized price was slightly lower at US$5.1 from US$5.3 per reported unit.
- The company moved from a US$17.8 million consolidated loss to US$102.7 million profit. Higher revenue and production, a US$16.2 million commodity-derivative gain (versus a US$15.4 million loss in 2017), and lower financial costs contributed. The 2017 period included US$17.6 million of debt-cancellation costs.
- Production and operating costs increased 76% to US$174.3 million, including higher royalties and costs from the newly acquired Argentine blocks. Administrative expenses rose 24% and depreciation rose 23%.
- Cash from operations rose 80%, but investing outflows increased to US$164.6 million, including the Argentina acquisition. Financing outflows were US$97.6 million, principally including US$81 million paid to acquire LGI’s non-controlling interests in the Colombian and Chilean businesses.
- GeoPark acquired the Argentine Aguada Baguales, El Porvenir and Puesto Touquet blocks for US$48.9 million net cash consideration. It agreed to sell its La Cuerva and Yamu blocks for US$18 million plus a possible US$2 million contingent payment; regulatory approval remained pending at filing.
Outlook, risks and unusual items
- 2019 spending plan: The preliminary base program is US$220–240 million, based on a reference oil price of US$70/bbl, funded from operating cash flow and cash on hand. A downside program of US$120–140 million is tied to oil below US$65/bbl; an upside program of US$240–270 million is contemplated above US$75/bbl. The Peru allocation of US$95–105 million is intended to advance Morona facilities, with production targeted for 2020 subject to environmental approval.
- Hedging: Management described oil-price hedges for 2019, including minimum average prices generally around US$64–65/bbl on specified volumes in the first three quarters. Derivatives are not hedge-accounted, so fair-value movements affect reported earnings. The filing also discloses a Colombian currency derivative equivalent to US$92.1 million to manage exposure on expected tax payments.
- Unusual charges and estimates: GeoPark wrote off US$26.4 million of unsuccessful exploration costs, including nine unsuccessful wells and other relinquished or discontinued exploration costs. It recorded a net US$5.0 million impairment reversal, combining a US$11.5 million Colombian reversal with a US$6.5 million Chilean impairment related to the Tierra del Fuego blocks’ sales agreement. These results depend on reserve, price and cost assumptions.
- Customer concentration: Trafigura represented 82% of consolidated revenue in 2018 and bought all Colombian oil production under the expiring long-term arrangement. The replacement arrangements extend through 2019 without long-term delivery commitments. Chilean oil sales are to ENAP and almost all Chilean gas sales to Methanex; Brazilian Manati production is sold to Petrobras.
- Contingencies and execution: The Morona development depends on environmental-impact approval and infrastructure in a remote area, and entails substantial committed funding. Other risks include oil-price volatility, reserve replacement, country and currency risks, pipeline and community disruptions, environmental regulation, and concession commitments. The PN-T-597 Brazil concession remains subject to legal and regulatory uncertainty; potential Manati environmental fines against Petrobras could expose GeoPark to its participating share.
- Accounting and audit: Management and the independent auditor reported effective internal control over financial reporting; PwC issued an unqualified opinion on the IFRS statements. IFRS 16 adoption in 2019 was expected to recognize about US$14.5 million of lease assets and liabilities initially, without changing Adjusted EBITDA.
Investor verification priorities
- Review the audited statements and notes for cash generation, income taxes, debt maturities, covenant calculations and the effect of the LGI transaction and remaining US$30 million installment payments.
- Check the status and economics of the 2019 Colombian oil marketing arrangements after Trafigura’s long-term contract expired, including customer diversification and payment terms.
- Verify that the 2019 capital program remains financeable under lower oil prices, and track actual spending against the base, downside and upside scenarios.
- Assess Morona’s environmental approval, infrastructure timetable, funding requirements and Petroperu’s rights to increase its working interest.
- Review the independent reserve report, especially reserve concentration in Llanos 34, undeveloped-reserve conversion plans, and the assumptions behind impairment reversals and the US$1.78 billion standardized measure of discounted future net cash flows.
- Monitor pending approvals for the La Cuerva/Yamu divestiture and other block commitments, as well as environmental, community, pipeline and PN-T-597 legal matters.