GeoPark Limited (NYSE:GPRK) Q1 2024 Earnings Call Transcript

GeoPark Limited (NYSE:GPRK) Q1 2024 Earnings Call Transcript May 16, 2024

Operator: Good morning, and welcome to the GeoPark Limited Conference Call. Following the results announcement for the First Quarter Ended March 31, 2024, after the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] If you do not have a copy of the press release, it is available at the Invest With Us section on the company’s corporate website at www.geopark.com. A replay of today’s call may be accessed through this webcast in the Invest With Us section of the GeoPark Corporate website. Before we continue, please note that certain statements contained in the result press release and on this conference call are forward-looking statements rather than historical facts and are subject to risk 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 Security Litigation Reform Act of 1995. This risk includes a variety of factors, including competitive development and risk factors listed from time-to-time in the company’s SEC results — 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 statement, but are not intended to represent a complete list of company business. All financial figures included here and were prepared in accordance with IFRS and stated in the U.S. dollars unless otherwise noted. Reserves figures correspond to PRMS Standards. On the call today from GeoPark is Andres Ocampo, Chief Executive Officer; Jaime Caballero, Chief Financial Officer; Augusto Zubillaga, Chief Technical Officer; Martin Terrado, Chief Operating Officer; James Deckelman, Chief Exploration Officer; Rodrigo Dalle Fiore, New Development and Portfolio Director; and Stacy Steimel, Shareholder Value Director.

And now, I’d like to turn the call over to Mr. Andres Ocampo. Mr. Ocampo, please, you may begin.

Andres Ocampo: Good morning, and thank you for joining our first quarter conference call. Today we’re proud to report progress and very important results on all key elements of our business and strategy. With solid first quarter results coming from our improved base business, new significant share repurchases, a big and very attractive transformation and acquisition, and impressive sustainability and decarbonization metrics. The underlying base business performance is continuing to deliver positive results. We had a strong production in both the Llanos 34 and the CPO-5 blocks. In the Llanos 34, our core asset, the combination of our horizontal web program and increased water flooding project took gross production to a range of 56,000 to 57,000 barrels a day in early April, the highest level in the last 12 months.

With the addition of the Indico 3 development well in April, the CPO-5 block production reached over 30,000 barrels a day, a new record. Our first quarter financial results were strong, generating over $111 million in adjusted EBITDA with a margin of 67%. During the quarter, we invested almost $50 million, and every dollar invested in the base business yielded around $2.3 in adjusted EBITDA. The return on capital employed for the last 12 months was 35%. The balance sheet remains strong as we ended the quarter with the highest cash position in the last three years, just over $150 million. Net leverage closed at 0.8 times and remains well below our long-term target of 1 times to 1.5 times. We recently added an uptake and prepayment facility with Vitol that further improves our commercial terms and gives us access to up to $500 million of oil prepayment facility, providing immediate access to competitive and flexible financing.

In the last four years, GeoPark has generated more than $475 million of net-free cash flow, almost 1 time our market cap, which was distributed to our shareholders in buybacks and dividends, as well as to our creditors in debt repayment, a proof of our commitment to maintain our capital discipline, a strong balance sheet, while continuing to return value to our shareholders. This month, we successfully repurchased $43.7 million in GeoPark stock during the Dutch tender offer, reducing shares outstanding by approximately 8%, and our board just declared a $7.5 million dividend to be paid on June 14th. We have also recently published our SPEED sustainability report for 2023, which highlights that we reduced our greenhouse gas emissions intensity by 18% from 2022.

At 10.6 kilos of CO2 equivalent per barrel, we’re extremely proud to report that we have the lowest carbon intensity among our upstream Latin American oil peers. Our Llanos 34 blog, which supplies close to 7% of Colombia’s total oil production, had remarkably low intensity of 7 kilos of CO2 equivalent per barrel. With respect to our asset portfolio expansion, we announced on Monday a new transformational acquisition in Vaca Muerta in Argentina, a strategic asset in the world’s fastest growing unconventional place. The transaction includes high quality assets with a combination of existing and fast growing production and cash flow with a significant and tangible exploration upside. The Mata Mora Norte block was producing zero about three years ago and is currently over 12,000 barrels a day from 26 wells in eight parts and with a ninth part of four wells already drilled and being completed now expected to be put on production before the end of June.

This production base is expected to grow to nearly 40,000 barrels a day within the next four years, an expected CAGR of 35% to 40% during the execution of the multiple remaining drilling locations. Upon closing of this transaction, we expect to add between 5,500 to 6,500 net working interest barrels of oil per day to our daily production, which is about 15% to 20% increase to the first quarter production. 50 million barrels of net 2P reserves of 43% versus our December 2023 reserve certification, which include also over $800 million of after tax [MPV 10] (ph) at GeoPark working interests equivalent to more than 4.5 times the purchase price of Mata Mora Norte. An estimated annual net EBITDA of $90 million to $100 million in full year 2024, which could grow by nearly 3 times to $300 million at plateau production and at $70 Brent, or more than 3.5 times at current oil prices.

Approximately 240 million barrels of gross 3C certified contingent exploration resources in nearly 200 additional drilling locations which could provide further significant growth even beyond the Mata Mora Norte plateau production. A significant part of this exploration upside is imminent, as the first part has been built and the first exploration well was spotted this month. We also have incorporated a new strategic partner, Phoenix Global Resources, which is part of the Mercuria Group, one of the world’s leading energy training companies. The technical and leadership teams at Phoenix have done an impressive job in bringing these assets to their current state, delivering significant production growth at highly competitive drilling, completion, and operating costs, with further improvements being achieved on every new well.

This team, both within Phoenix and at prior ventures, has more than a decade of experience in Vaca Muerta and have also taken part of the de-risking of the entire Vaca Muerta oil and gas play in the earlier days. We’re very proud and happy to be partnering with Phoenix and Mercuria in this new initiative. We have started a very busy year and have an exciting 2024 and beyond with some high-impact upcoming catalysts, both with drilling activity underway in our existing core asset base, as well as the closing and drilling activity in our new Vaca Muerta assets. We look forward to reporting our progress to you. We remain committed to consolidating our leading position among Latin American energy companies producing sustainable hydrocarbons that guarantee energy security, reliability, and affordability in this rapidly changing world.

We will now be happy to take any questions that you may have. Thank you.

Q&A Session

Operator: [Operator Instructions] And our first question comes from Alejandro Demichelis from Jefferies.

Alejandro Demichelis: Yes, good morning. Thank you very much for taking my questions. Three questions, if I may. Maybe the first one, Andres, is now that you’re having more CapEx going to Vaca Muerta, so how should we think about the balance between extra CapEx, free cash flow, and cash returns to shareholders over the next kind of couple of years? That was the first question. Second question is, could you please provide us an update on the delineation and appraisal program that you have been conducting on CPO-5? And then the third question is on the new acreage in Vaca Muerta where you’re doing the exploration, what do you see at the risk of the oil getting much heavier on that side of the basin, please?

Jaime Caballero Uribe: Helo, Alejandro, it’s Jaime. I’m going to address your first question, if you will, and it kind of tackles two angles as I understand it, which is how does this entry into Vaca Muerta and its capital profile and production profile affect shareholder returns? So I’m going to first talk a little bit about the CapEx profile and give you a little bit more detail what we already announced previously. When you look at the base case for Vaca Muerta and Mata Mora in particular, our goal is to reach 40,000 barrels of production around 2027. And we expect to retain a plateau of possibly two, three years around that time. In order to get there, the CapEx exposure that we see to get there is going to be around $1.3 billion over the next 10 years, right?

It’s going to gradually escalate. We see this year, it’s going to imply an incremental CapEx of about $100 million. Next year, about $160 million, $170 million, getting to a peak of $280 million around 2026. So that’s what it’s going to take in order to get there. Now we obviously need to put that in context, that getting there is going to have a significant EBITDA contribution to the company. This is a clearly value-accretive deal where we’re seeing an incremental EBITDA for the company of between $360 million to $400 million per annum at $70. So in that context, what we are seeing is that over time, this deal is paying off by itself with its own cash generated, and it’s going to allow us the cash flexibility to sustain our shareholder return strategy.

So specifically, in the near term, what we’re seeing is, we are expecting to maintain our existing policy of $30 million in dividend distributions per annum. We just announced the $7.5 million associated to the first Q. And at the current price deck, we don’t see any issue in maintaining that over time. At the same time, as you also noted, we performed the Dutch auction earlier in April. That’s going to take our total shareholder returns this year to $80 million, about $80 million, which is significantly above what we had last year. Last year, we had $61 million for example. So all in all, what we’re seeing with this deal is that it actually expands our capacity to maintain these returns over time. There is going to be a capital intensity associated, but given the returns that the asset provides, it doesn’t affect our ability to provide an interesting yield to our shareholders.

And lastly, I guess the other angle that needs to be covered when you’re talking about shareholder returns, that’s probably the cash component. We, of course, see with this deal that there is another angle, as I said, to the intrinsic value of the company. When you look at our reserves before this deal, we were talking about a 1P net asset valuation of about $1.1 billion and a 2P net asset valuation of about $1.8 billion. With this deal, the 1P net asset valuation goes to $1.5 billion, that’s a 33% increase. And the 2P net asset valuation goes from $1.8 billion to $2.6 billion, that’s a 46% improvement. So all in all, we believe that our shareholders are going to be benefiting from both sides, on one hand, from the direct cash yield angle, if you will, but also from intrinsic growth over time.

Alejandro Demichelis: Thank you.

Andres Ocampo: On CPO-5, Martin? Martin, would you like to take CPO-5?

Martin Terrado: Absolutely. Good morning, Alejandro. Thanks for your question. like Andres mentioned in his initial remarks, we’re really happy with CPO-5 performance. We keep breaking records. I kind of remember that in November 2018, 2019, when we acquired Amerisur, that block was 8,000 barrels of oil per day, and like Andres mentioned, we’re at 30,000. We have put on production the well Indico 3, and it’s producing good rates, around 3,700 with no water. The rig continues drilling in the — when you look at delineation, like you were asking, you’ve got to remember, we got two wells that we drilled delineating the Barco formation. They were Halcon and Perico. Perico is delivering more than 900 barrels of oil per day with very low water cut.

Halcon had completion challenges, so that well, it’s not producing as well. And as we continue delineating, we are drilling the well [indiscernible]. This is part of the Barco delineation that we’re doing. We expect to be completing that well by late May. And after that, the rig will go and drill another exploration well called Lark. So that’s kind of where we are on delineation. We expect to have that rig work in the full year.

Alejandro Demichelis: That’s great. Thank you, Martin.

Rodrigo Dalle Fiore: Hi, Alejandro, this is Rodrigo. I’m going to tackle your question about Confluencia. Technically, what we see there is a continuation — the continuity of Mata Mora to the east part. Of course, we know that there are certain regional trends like the heavy — for example, how it’s going to affect the IPI and the gravity of the oil. But there are always good things that we can mention here because during the evaluation period, we saw really good results from, for example, Vista and Pan America [indiscernible] where they are producing very good wells in the same trends where we are in Confluencia. So that’s, from the technical point of view, what we see there, of course. And also, we have a robust report from the [indiscernible] where they say that we have more than 200 million barrels as resources in the area.

But to be honest, we have to deal with the block. And what we are doing now, we are drilling three wells. We expect the result before the end of this year. And also, we had just finished 234 square kilometers of seismic to complement this information. But we are optimistic and we expect a range of productivity in this area in line with the same rate that we see in Mata Mora.

Alejandro Demichelis: And could you please confirm the rates that you see in Mata Mora Norte then?

Rodrigo Dalle Fiore: Yes, we can go to Mata Mora Norte. During the evaluation period, we ran [indiscernible] because we not only used the 26 wells that we have in Mata Mora, we also see the neighborhoods in these analog fields. And also, we have a reserve report from the [indiscernible] And at the end of the day, we see a range, a range between 600,000 barrels per day and 1 million at most of the wells. But what we see now is a clear learning curve, leading by our operator and partner because the most recent wells are outperforming. They are producing very, very good. You can see more than 2,000 barrels per day as a productivity. And another example, a good example that you can take is in February, the Mata Mora [2073] (ph) was the best producer well in the basin.

So that’s why we believe that the range is adequate at the moment, but also we are seeing that our partner and operator is doing the things better every day. So that’s why maybe this expectation is increasing in — with the last results that we are seeing.

Alejandro Demichelis: That’s great. Thank you very much.

Operator: Our next question comes from Daniel Guardiola from BTG.

Daniel Guardiola: Hi, good morning, Andres and Jaime. I think most of my questions are on Argentina. It would be great if you could share with us additional details on the acquired assets. I’d like to know, I mean, I know Jaime just talked about the expected CapEx for the upcoming years. But I don’t know if Jaime, maybe you could share with us the total size of the development plan agreed with Phoenix for the development of Mata Mora Norte and what percentage of the total identified wells or drilling locations is this plan forecasting to cover? That would be my first question. The second one will be additional details on the Mata Mora Norte already drilled wells. So it would be great if you could share with us the IRRs so far that the company has seen per well.

It’d be great to see the EURs of the type curve that you’re seeing and the average realized prices at which Phoenix is basically selling its oil flowing out from Mata Mora Norte. And the third question and the last question is on future growth opportunities. I mean, my understanding is that, after the closing of this transaction, your net leverage is now going to surpass 1.1 times net debt to EBITDA, which is still very low, very healthy level. So I would like to know your thoughts on additional acquisitions similar to this one. And if you’re thinking about it, what will be the main features you will be looking at when doing another acquisition? That will be all.

Jaime Caballero Uribe: Hello, Daniel, it’s Jaime here. I’m going to try and cover a number of the questions that you made, and I’m going to then pass it over to Rodrigo who is going to give us a little bit more color around Mata Mora Norte to date. So let’s start first with your first question, which is essentially around our development plan philosophy. And I would start with this notion, which is that, one of the key reasons why we decided to partner with Phoenix and why Phoenix decided to partner with us, frankly, was that a clear alignment around where we wanted to take the asset. And there is here a joint vision where we want to take the Mata Mora development to 40,000 barrels a day. In parallel, we want to fully explore Confluencia and hopefully add to that.

And what we’re seeing is a four blocks that over time are going to have massive economies of scale and of development pace and even commercialization. So that’s what we’re aiming to do, right? And that vision that you can extract from our release takes us to anywhere between 40,000 barrels to 60,000 barrels a day within five years. The work program budget that we’ve agreed with them essentially reflects that. So the numbers that you’ve seen we quoted, about 150 remaining drilling locations, that’s what we’ve identified with Phoenix, and that’s what we want to pursue together with them. Same thing applies for Confluencia in the success case. Obviously, Confluencia is further behind, if you will, in terms of its maturity so those are not firm numbers.

There’s a derisking component associated to that. But in Mata Mora, it’s actually quite firm and it’s what essentially is what underpins the research numbers that you see us quoting. And how does that translate to actual activity? Essentially, we’ve actually committed with Phoenix, jointly, we’ve committed to sustaining a two rig program over time. That’s how we’re seeing this develop. Currently, there’s one rig. The second rig is going to come in the later part of next year. And after that, we’re seeing a sustained two rig drilling program indefinitely, essentially, indefinitely as more options as we go through this hopper of essentially 350 wells and hopefully other options will arise. That’s how we’re thinking about it. The CapEx numbers that I quoted, Daniel, in the previous question are consistent with that.

If you essentially do the numbers of 350 wells, given the well cost, it’s going to take you to that place. Let me cover now the average realized prices, especially what we’re seeing and what we are expecting, Daniel, is I would say there’s two angles here. There is production that goes to international markets, and there’s production that is sold domestically. Those ratios are going to change over time. If you look at the history, that’s been the case. So we cannot be too deterministic about it. But as a rule of thumb, what I would suggest is that we can sustain at least 30% of sales are domestic and about 70% can go to international markets. That’s what we’re seeing. I think that’s going to change over time as the market evolves. This is a basin that is growing very quickly, and of course, that the commercial conditions around it as infrastructure matures and evolves are going to change as well.

But generally speaking, that’s the direction that we’re seeing. I think what underpins that assumption, that 70% of the barrels can be exported, is that we are now seeing a surplus, whereby the needs of the refining sector in Argentina are very well met, so that allows for flexibility to export volumes. The sort of differentials that we’re seeing are in the range of $10 to $12 versus Brent. That’s the sort of discount that we are seeing and that we are modeling going forward as we look at this development. In terms of net leverage, you already quoted, Daniel, the number that we’re seeing, that kind of 1.1, that’s not to exceed over the near term. I think what could change that is, there’s two angles that could change that leverage. I think that if we have a success case in Confluencia, possibly our capital — or possibly, no, our capital intensity will increase, but it will increase for the right reasons with a substantial reserves, production, and EBITDA price associated to that.

We modeled that at a very high level. And even in those scenarios, we are in the 1.2 — we actually don’t reach 1.3, even in those scenarios, right, even in those scenarios. So that gives you an idea of kind of like the profile that this development has. What that means is that we do have remaining firepower to engage in attractive inorganic opportunities. The way that I will frame this is that in the near term, clearly, our focus is on delivering our plan, our existing organic plan and now a high-quality incorporation of the assets into our portfolio. That is clearly a priority. This is a big investment for GeoPark. And we are going to get it right and we need to get it right. And in that sense, we’re setting up a team that is going to work with Phoenix to progress this development plan as we’ve been discussing.

We’re going to be placing second [indiscernible]. We’re going to be securing the provincial approvals that we need to get the transaction closed within the next few months. We’re going to set up performance management processes that allow us to have quality conversations with our partner and with the market around how this is evolving over time. And in the end, it’s ultimately all about how can we efficiently and effectively collaborate with Phoenix to deliver the value promise that we’re making with this deal. So that’s clearly the priority. Having said that, we — our growth aspirations do not stop here. And we will continue to be looking at options, strategic options that make sense for us. I think, Andres, in the prior call, Daniel, when you asked about this, Andres was very eloquent about our pan-regional aspiration.

We have — we are strong believers in the quality of Colombia, Brazil, and Argentina as world-class petroleum basins that we need to be in, and that’s unchanged with this transaction. Actually, what I would say is that this transaction shows that, demonstrates that and is evident of that. But it’s not the end. It’s not the end. And we will continue to look at options that make sense for us. So I know that was a long answer that I covered. I think I covered four of your five questions. Over to Rodrigo.

Rodrigo Dalle Fiore: Thank you, Jaime. Hello, Daniel, this is Rodrigo. We set that range between 600,000 barrels and 1 million as an average in the Mata Mora Norte area. But let me put this in a frame — in a time frame, because what we see is a clear learning curve here. Most of the first wells in the area looks poor than the recent wells that we are seeing. That means that the operator is doing a great job in order to improve not only the operational aspect, but also the way that they are at least landing the wells because they switch from C2, what we call it, is a very technical definition, but they started to drill new wells in other landing zones in the area where we have or we see better productivity. So that’s part of the learning curve that we are seeing.

So that’s why if I had to summary this, the initial estimation that we see for the area is a well that can produce between 1,000 and 1,500 barrels a day as a peak at least in the first two months. Now we are seeing most of the wells producing more than 2,000 wells — 2,000 barrels per day. So that’s a great news for us. It’s the reason because we are talking about wells that are produced for the last three months, but definitely, we see this trend in most of the activity that we carry out in the field. So that’s a great news for us and for [indiscernible] of course. Another thing that we see with optimistic eyes is the well cost. They were able to reduce the cost of the well more than $15 million at the beginning, now they are drilling before — between $14.3 million, and we expect to finish the year close to $13 million per well.

So that’s what we expect. That’s the intention of the operator and, of course, our intention, too. So that’s what we are seeing in terms of productivity, well costs. And of course, you asked about [indiscernible] as Jaime mentioned, we expect to develop the 150 wells in the area. And that’s the point that we have as a minimum plan with them.

Andres Ocampo: I think IRRs, he also asked about IRRs expected from the wells.

Rodrigo Dalle Fiore: The IRR is a range, of course, but we are seeing between 30% and 70%. Thank you for reminding.

Daniel Guardiola: Thank you, guys, for the very thorough answer.

Operator: Our next question comes from Roman Rossi from Canaccord.

Roman Rossi: Hi, good morning. Thanks for taking the questions and congrats on the results and the acquisition announced. So just wanted to get a sense regarding the facility with Vitol. I would like to understand how much are you expecting to use for the acquisition? And what are the terms beyond — you mentioned it’s [indiscernible] 35%, but does it have an undrawn fund cost associated. And additionally, what’s the cash at hand target after the acquisition?

Jaime Caballero Uribe: Hello, Roman. How are you? Let me cover the Vitol question. So I would start saying that the Vitol deal, it starts with being about commercial performance. Financing optionality is a plus. It’s an upside, but underpinning it’s commercial performance. So this deal covers and secures a very competitive commercial discount for our Llanos 34 production. That improved commercial differential is something that we’re actually going to see coming across as better price realizations. I think we’ve quoted in the statement that this represents a $0.60 improvement over what we were seeing two, three years ago. And that’s a prime motivator for engaging in this type of deal. The nice thing is that, beyond the commercial performance that these deliveries, it does provide significant financing optionality.

So the key terms are we have — Vitol has committed $300 million that we can draw at any time in the near term. It is unsecured. It has a very competitive interest. Reported SOFR plus [3.75] (ph) that’s about 9% interest, which compares very favorably even with our own existing bond and the sort of interest that you would get in longer-term financing in the bond market today. It also gives us a grace period that extends until the end of this year without making any payments if we draw on the line, and it can be repaid at any time. So it actually keeps our longer-term financing options fully available for us if we believe that’s the convenient thing to do and if the market conditions adjust to that. So that’s kind of like the general framework.

In terms of our plans with that line, I think — the way that we think about it is, let me stand back and talk more broadly about how we are actually approaching this deal, the Vaca Muerta deal. So basically, when you look at the deal, at signing, we already paid $50 million of the numbers that we quoted there in the statement. That’s already been paid, and we paid that with our own cash, right, with existing cash that we had no financing whatsoever. And actually, let me tell you, the remaining balance after paying those $50 million was $110 million. So currently, we have $110 million in the bank, and that’s already gone through the upfront consideration of this deal. The next big milestone in the deal is the balance that we need to pay at closing, and that balance essentially is $150 million that need to be paid at closing.

With that, we cover the entire upfront consideration of the deal. The other thing that we need to consider when we look at our CapEx is that the carry component of the Confluencia wells is going to go in parallel to this. And what we are estimating is that, that’s going to represent this year about $100 million. That’s the estimate that we are expecting this year. So what that means is that in the remainder of this year, the deal is going to represent an extra $250 million versus the plan that we have. How are we going to finance that? It’s going to be likely a combination of the cash surplus that we are accumulating at these prices. We are accumulating cash as an important cash surplus every month at this price deck. And the remainder, very likely, using the Vitol financing facility.

If I would give you an indication and with the caveat that this is flexible because we have total flexibility on this, I would give you an indication that we could use about $150 million of the Vitol facility this year to underpin this effort. And it represents no interest this year as it’s covered by the grace period. If we do that, payments will start in January of next year, and you’re going to see monthly amortizations for that figure of about $7 million a month. That’s the way to think about it from a modeling standpoint. Thank you, Roman.

Roman Rossi: Great. Thank you, Jaime. And maybe a follow-up on the acquisition. You say that you expect to close in Q3 so that will be impacting your fourth quarter financials, right?

Jaime Caballero Uribe: Yes, Roman. So basically on this, I think there’s two things that — two key milestones you need to consider. I think there is an effective date and then there is the closing date. So regardless of closing, and let me define closing. So for the purposes of this deal, the private deal between Phoenix and GeoPark are fully complete. So that deal is complete, it’s irrevocable. We have an agreement between us. Now when we talk about closing, we’re really talking about the regulatory approval that the provinces in Argentina need to provide so that we are, if you will, the equivalent of a leaseholder, right? So that we come through in the public bid as a leaseholder. That’s what we referred to closing on this.

And there are two aspects. We need an approval in [indiscernible] for Mata Mora, and we need our approval in Rio Negro for Confluencia. So we are expecting that to occur within the next few months. When that occurs, that triggers the payments that I mentioned previously of $150 million to things. So that’s what closing refers to. Despite that or having said that, the effective date is going to be the 1st of July. So the economic aspects of this deal are already effective starting on the first of July. So we start to look at all the accounting of the deal on that 50-50 basis, the 50% basis. Well, how is this going to into accounting? What we see is that, subject to closing, and let’s assume that we close by the end of the 3Q, what you’re going to see is that, in the fourth Q financial statements, you’re going to see this fully consolidated on a line-by-line basis, right?

As an indication of that, in 4Q, you’re going to see anywhere between 6,000, 7,000 extra barrels a day of performance — of production. You’re going to see a share of costs. You’re going to see all the different lines what this deal implies. On the EBITDA line, what you should be expecting for 4Q would be an additional EBITDA of around $30 million. That’s what we are estimating at this time. So it’s going to be fluid from here to there. But if I would have to give you a message is that, consolidation starts post-closing, but economic effects start the 1st of July, regardless of closing date. That’s the bottom line.

Roman Rossi: Awesome. And just one last question on Colombia. So a couple of days ago, there was a public hearing at the Constitutional Court regarding the nondeductibility of royalties. So do you have any comments on that front? And say that they want to keep the nondeductibility valid for 2023, which is one of the alternatives that the government is trying to get. So will you need to pay more taxes or how that will work for GeoPark? Thanks.

Jaime Caballero Uribe: Sure, Roman. So let me provide some kind of broader context on this. So really, what’s in discussion is that as part of the tax reform that was approved last year, the tax reform had two components. It had a surcharge linked to price environment on the corporate tax. That surcharge went from 0 to 15. That’s in place, it’s not in discussion. The other component was the nondeductibility of royalties, which was declared unconstitutional by the Constitutional Court at the time. What has happened is that, the government presented a recourse whereby they requested like a second hearing on that by the Constitutional Court. What the Constitutional Court has communicated is not a final decision on it but the willingness to perform that review, willingness to perform that review.

While they do that, the prior decision still stands. So this does not suspend the decision that the Constitutional Court had already made of declaring that unconstitutional. What that means is that for — we are actually in May, which is tax season, right? So we are in tax season. Companies are going to make a decision around how are they calculating the deductibility of royalties. What prevails at this time is that decision that, that is unconstitutional. So at least for GeoPark, we are going to act on the basis that, that’s unconstitutional, right? And now what could happen later on is that the Constitutional Court decides to reconsider its previous decision, this will have an effect on next year’s declaration, right? And there could be some form of recognition of what was not paid in 2024.

What we have estimated the impact, as I stated to that, we have estimated it between $12 million to $15 million. That’s the rough estimate that we have associated to that. It is a range because it depends on things like royalties paid on time, fluctuating volumes. There’s some moving pieces around that. So we estimated in a $12 million to $15 million range. Importantly, in the guidance that we have provided to you guys around our full year 2024 EBITDA, we actually — this actually doesn’t have any impact on that because the way that we provided that guidance, it assumes at the time, remember that this was the plan that we announced back in November. At the time, we were operating under the existing tax reform. So for us, this is an upside. If this is ultimately this is confirmed as unconstitutional, it is an upside to our case, right?

And if the government’s idea of contesting this and timing this goes forward, it’s not going to represent a downside.

Roman Rossi: Okay, awesome. Thank you Jaime and congrats again on the acquisition.

Jaime Caballero Uribe: Thank you. Thank you very much.

Operator: And our next question comes from Oriana Covault from Balanz.

Oriana Covault: Hi. Thanks for taking my questions. Many of them have been answered already, but I have one — a couple of follow-ups on the Vaca Muerta acquisition. First, regarding the development and completion costs that you shared, it’s my understanding that [indiscernible] have been in the $10 million to $11 million per well. So just to understand if this difference between the numbers that you’re talking, it’s because of area specifics and/or if you could share additional color on what you’re seeing on your end. And also related to the Vaca Muerta acquisition, if you could comment on any — from the regulatory side of things, right, how are you seeing the landscape in terms of the possibility of repatriating profit of the operations once they are ongoing?

And one last one regarding quality discounts. Congratulations on the commission agreement with Vitol. But just to understand if you’re expecting any potential — what are you seeing from the entry into operations of the [indiscernible] refineries and lower exports of crude oil? Could this potentially benefit you in terms of quality discounts? That would be a helpful color to have. Thank you.

Andres Ocampo: Hi, Oriana, this is Andres. Your line comes a little bit noisy. Let me repeat, if I am to see if we understood your questions correctly. Your first question is with respect to the drilling and completion cost of the wells that we are estimating for these assets?

Oriana Covault: Yes. It has to do with the drilling and completion costs compared to what local peers have been reporting in the same area. Our understanding is that it is closer to perhaps $11 million a well. So just to understand whether the difference is something area-specific or if you could share additional color on what you’re seeing. And also on the Vaca Muerta transaction, the additional follow-up has to do with the regulatory challenges that you may see to the potential of taking profits from the operations. And the last one has to do with quality discounts and where do you see them going through the remainder of the year. Thank you.

Andres Ocampo: So the second one is related to capital controls in Argentina and the last one to quality discounts on the crude sales, correct?

Oriana Covault: Yes. Sorry for the trouble with the line.

Andres Ocampo: No, no, that’s okay. That’s okay. So Rodrigo?

Rodrigo Dalle Fiore: Hello, good morning. This is Rodrigo here. It’s important to remember that the drilling costs two years ago was close to $16 million per well. Now the last — in 2023, they end the year with $14.3 million per well, so that’s a tremendous improvement. Of course, this is because they learn but also they introduced technology and the services prices getting down. So that’s the trend that we see for the future in the model we used for the next two years, $14.3 million per well. But after 2026, with an extra drilling rig in area, we are talking about $13.6 million per well. So that’s the base case that we have. But to be honest, what we see is, it’s a trend not only here in Argentina, but at the same time, you can see the same trend in Permian, the trend in efficiency in terms of drilling wells is continue improving. So that’s why we expect better performance in the future and lower cost. But that’s the cost that we use for the model.

Jaime Caballero Uribe: Oriana, I guess, in terms of your — the angle around benchmarking, I think there’s several considerations here. But I think the most important thing is to look at the trend. Regardless of who is the operator, what we’re seeing in Vaca Muerta is a consistent trend where your cost per well is improving over time. I think as you would expect, there are differences from operator to operator. That’s always the case. It depends on the standards that we use. It depends on specific requirement of the locations and geographies where they are operating that allow synergies or not. The $10 million to $11 million cost per well that you’re mentioning, we believe that is in the very low end. We prefer to use a more conservative assumption that ensures that we can maintain the robust well designs that have characterized Phoenix so far.

That’s something that actually attracted us to this deal and it has to do with this alignment of ways of operating and everything. And Phoenix is of the view that you need to ensure certain integrity standards and quality standards around the well, and we’re comfortable with that. I think anything that can be delivered on top of the $13.6 million is going to be upside and that is, of course, great news. With regards to your other question, Oriana, the regulatory challenges in Argentina, I’d say the way that we structured that transaction is that the transaction needs to fly under the existing regulatory environment, right? So we are not banking on any type of positive developments in the regulatory environment, even though there are clear winds of change that could suggest that those upsides are possible.

In the near term, the biggest consideration that we’ve looked into is capital controls and particularly those associated to the influx of money going into Argentina and coming out of Argentina and what is the impact of that in the economics. I would say that our biggest consideration is that when you look at the profile of this program and the goals that we talked about this program, where we want to grow the asset quickly over the next five years, what we’re seeing is that it is not a big issue that capital controls because we actually expect that all the revenues and all the EBITDA that these deals generate to stay in country to underpin that growth in the near term. I’m sure that over the medium and long term, options will come up if that is needed.

But the priority at this time is to make sure that we can fully fund the growth of that asset, and we’re confident that we can do that under this new regulation. And lastly, with regards to the quality — to the evolution of discounts over time, I think it’s going to be very fluid. And as I mentioned before, Oriana, on a prior question, the important thing is the trend. And the trend that we’re seeing is that as Vaca Muerta grows, the surplus production relative to the requirements of domestic refining is just going to grow and grow and grow, right? Surely, there’s going to be a discussion between — with the regulator and between operators about how do you distribute and how do you allocate exports capacities. Surely, that’s going to develop over time.

What we’re seeing is that this — even in a stressed scenario where you have to fundamentally alter that balance between exports and domestic sales, the quality of this asset is such that it allows you a good return. So even in those scenarios, that is not a concern. So obviously, to the extent that you can fully — if the market in Argentina develops in a way that you have, if you will, a free market with perfect conditions, that’s only going to represent upside to this deal. Thank you.

Oriana Covault: Thanks for your questions. Just one follow-up because maybe I wasn’t fully clear, but I was referring more on the Colombian side of quality discounts. Just to understand how are you seeing the evolution of potentially fewer exports out of [indiscernible] because of the entry into operations of those refinery, having a potential upside into your heavy crude collection. That was more of the angle of this. Thank you.

Jaime Caballero Uribe: Yes, sure. Thanks for clarifying, Oriana. So I guess in Colombia, I’d say I’ll start with a simpler view and then kind of a more broader kind of market, that in our case, the bulk of our production which is Llanos 34, we’ve already secured commercial conditions for those to the Vitol deal. That covers about 20,000 barrels of production, give or take. And then what you’re talking about is really the remainder, which is a combination of CPO-5, Llanos 34 exploration and Putumayo. The fundamentals for all of them are going in a positive direction. CPO-5 is a super high-quality crude that is extremely attractive to the local refineries in Colombia. We believe that we can maintain the existing differentials that we’re seeing, the existing commercial differentials that we’re seeing for that, which are actually a premium.

We’re actually getting a premium on Brent of about $5 a barrel on that. So we’re very optimistic about the commercial differentials that we can get for CPO-5. On the Putumayo front on Oriente front, what we’re seeing is an interesting development where a number of players are actually quite interested in getting those volumes because they’re able to export them through the Pacific or make blends, special blends associated to that. So overall, what I would tell you, Oriana, is that the sort of differentials that you saw in 1Q, we believe we can sustain them over the medium term.

Oriana Covault: Perfect. That’s great. Thanks you very much guys,

Andres Ocampo: Thank you.

Operator: And our next question comes from Alejandra Andrade from JPMorgan.

Alejandra Andrade: Hi, thanks so much for taking my questions. Mine is a quick one. I know you said you already have some existing infrastructure for transportation in Argentina, but just wondering because you said that there was a pipeline still that needed to be built in order to have all the proper infrastructure for exports and transportation. So just wondering if you could comment a little bit more on that. Thank you.

Jaime Caballero Uribe: Hi, Alejandra, this is Jaime. So yes, effectively, as part of this transaction, we secured the access to the midstream capacity that we need to make the deal work. Essentially, we’ve secured an entry into the [indiscernible] pipeline that provides us with a capacity of — the equivalent of about 19,000 barrels per day. Of that, about 5,000 barrels a day are already in place, and the pipeline is under construction and is expected to be fully delivered by April 2026. So by that time, which is when we are starting to — we’re going to get near to the plateau production, we are expecting to have that capability fully in place. There’s also open market access to redundant capacity in that pipeline where there’s the ability to access that.

And there are other projects to construct additional capacity in Argentina. But with respect to this deal, in particular, what we have secured is that 19,000 barrels a day that I mentioned. That covers essentially 50% of the plateau, right? So the way to think about it is that we have secured transport rights to export ports for about 50% of the production already. And there’s optionality for other infrastructure that’s going to come about over the next couple of years.

Alejandra Andrade: Thank you so much.

Andres Ocampo: Thank you.

Operator: We currently have no further questions. I will hand back over to Andres Ocampo to conclude.

Andres Ocampo: Thank you, everybody, for your interest and your support of our company. We’re always here to answer any questions you may have. We encourage you to visit us in our field and our operations or call us any time for further information. So thank you, and have a good day.

Operator: And this concludes today’s call. Thank you for joining. You may now disconnect your lines.