GeoPark Limited (NYSE: GPRK) — 2020 Form 20-F
Business context and reporting period. GeoPark is a Latin American oil and gas exploration and production company operating in Colombia, Chile, Brazil, Argentina and Ecuador. This audited annual report covers the fiscal year ended December 31, 2020, with comparisons primarily to 2019. Financial statements are in U.S. dollars and prepared under IFRS. GeoPark acquired Amerisur in January 2020; its results are included from acquisition, not for the full comparative year.
Key financial and operating metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $393.7 million | $628.9 million |
| Operating profit (loss) | ($110.7 million) | $210.7 million |
| Net profit (loss) | ($233.0 million) | $57.8 million |
| Adjusted EBITDA, non-IFRS | $217.5 million | $363.3 million |
| Cash from operating activities | $168.7 million | $235.4 million |
| Capital expenditures | $75.3 million | $126.3 million |
| Average net production | 40,192 boepd | 40,046 boepd |
| Year-end proved reserves | 100.6 mmboe | 124.0 mmboe |
- Revenue fell 37%, principally because of lower realized commodity prices. Crude oil sales were $359.6 million and gas sales $34.1 million; oil accounted for 91% of revenue. Average realized oil price was $31.2 per barrel, down from $50.7.
- Production was broadly flat year over year. Average operating and royalty costs totaled $9.1 per boe, compared with $12.3 in 2019.
- Significant unusual charges included $133.9 million of impairment losses and $52.7 million of unsuccessful-exploration write-offs. The largest impairment was $82.0 million in Chile’s Fell Block; other material charges related to Peru and Argentina.
- Cash and cash equivalents were $201.9 million, versus $111.2 million. Total debt was $784.6 million, versus $437.4 million; reported net debt was $582.7 million. Equity was negative $109.2 million, including accumulated losses of $380.9 million.
- Current assets were $291.6 million and current liabilities $196.7 million. The filing reports no off-balance-sheet arrangements at year-end.
Material changes versus 2019
- Revenue declined 37%, while operating costs fell 26% and cash from operations fell 28%. Lower prices and higher impairments and exploration write-offs drove the swing from profit to loss.
- Proved reserves decreased to 100.6 mmboe from 124.0 mmboe. The filing cites the decision to exit Peru’s Morona Block, lower prices, revisions to development plans and well performance; additions from discoveries and Amerisur partly offset declines.
- Investing cash outflow rose to $347.6 million, largely reflecting $272.3 million paid for Amerisur. Financing cash flow was $271.1 million, including $350 million of proceeds from the 2027 notes.
- Debt increased mainly after issuance of $350 million of 5.50% senior notes due 2027. The existing $425 million notes due 2024 carry a 6.50% coupon. More than 97% of debt was scheduled to mature in 2024 or 2027; most was fixed-rate.
Outlook, commentary and risks
- Management attributed the year’s market disruption to COVID-19, reduced fuel demand and the 2020 oil-price shock. It cut the 2020 capital program, reduced overhead and workforce costs, renegotiated service contracts and temporarily suspended dividends and buybacks. It reported uninterrupted operations during 2020.
- In March 2021, GeoPark announced a revised 2021 capital program of approximately $130–$150 million, based on a reference oil price of $50–$55 per barrel. Earlier scenarios ranged from $50–$85 million below $35 oil to $140–$160 million above $50. Management expects to fund the program with operating cash flow and cash on hand, while retaining flexibility.
- Management said it had hedged a portion of 2021 and 2022 production. At year-end, cash was $201.9 million and the company was reported in compliance with debt indenture provisions. A Trafigura prepayment facility of up to $75 million was available through June 19, 2021; no amount had been drawn as of the filing.
- Key exposures include oil and gas price volatility, reserve replacement and estimation, dependence on a few customers, debt and funding needs, regulatory and contract obligations, environmental and climate risks, and political and community disruptions. Colombian sales to three customers represented 83% of consolidated revenue.
- Contractual commitments included $200.3 million of pending investment commitments and $59.5 million of potential liability under guarantees. The filing also describes a UK claim by community members concerning alleged environmental damage; Amerisur disputed the allegations, and alternative security of approximately $6.1 million was provided under a letter of credit.
- Proposed sales of GeoPark’s Manati interest in Brazil and farm-out of the REC-T-128 block were subject to conditions or regulatory approvals. The Manati sale had not closed as of the filing.
- The 2020 financial statements received an unqualified audit opinion. Management and the auditor reported effective internal control over financial reporting, but Amerisur—36% of consolidated assets and 11% of revenue—was excluded from the 2020 internal-control assessment and audit scope.
Important facts for investors to verify
- Whether 2021 capital spending, production and cash generation support liquidity, debt service and the expected funding plan under actual oil prices.
- The maturity, covenants and restrictions associated with the 2024 and 2027 notes, and how negative equity and net debt affect financial flexibility.
- Progress and final proceeds from the Manati and REC-T-128 transactions, including outstanding conditions and approvals.
- Reserve revisions, impairment assumptions and the feasibility and timing of developing the 47.6 mmboe of proved undeveloped reserves.
- Status and potential exposure from the UK community claim, environmental obligations, contractual guarantees and outstanding investment commitments.
- Integration and control testing for Amerisur, given its exclusion from the 2020 internal-control assessment.
- Dividend capacity: the board declared a $0.0205-per-share quarterly dividend in March 2021, but payments remain discretionary and subject to liquidity, legal and debt restrictions.