Year 2010 – Final Results
Financial Highlights
Total Revenues Up 77%: Total revenues increased to US$79.6 million (2009: US$44.8 million), with the increase being driven by a combination of higher sales realisations for both oil and gas and higher oil production. Oil revenues at US$48.2 million, increased by 118%, and constituted 61% of total revenues in 2010. The rise in oil revenues resulted from a combination of a 59% increase in production volumes to 719,000 barrels and a 35% increase in realisations, which averaged US$72.12 per barrel in 2010. Gas revenues rose by a more modest 38% to US$31.4 million. This increase was driven by a 45% increase in average realized sales prices to US$3.13 per mcf, partially offset by a 2% reduction in gas production volumes to 10.9 bcf.
Net Income of US$4.2 million: GeoPark returned to a positive net income of US$4.2 million in 2010, having recorded a loss of US$8.0 million in 2009. Higher oil production volumes and strategic hires of management and employees were responsible for increasing total costs.
Adjusted EBITDA Up 132%: EBITDA (adjusted for non cash items such as impairment charges, write-offs and share based payments), a key internal performance indicator for GeoPark, rose to US$41.1 million in 2010 (equivalent to US$16.30 per barrel of oil equivalent) compared to US$17.7 million in 2009 (US$7.70 per barrel of oil equivalent). Cash flow from operating activities increased by 46% year-on-year to US$30.9 million (2009: US$21.2 million).
US$133 million Corporate Bond Issue: On 2 December 2010, GeoPark successfully completed the private placement of US$133 million of Regulation S notes, which was oversubscribed. From the proceeds of the notes, US$14.5 million was used to repay the IFC loan and a further US$14.5 million to repay a loan outstanding with Methanex since October 2009. The balance of the proceeds will be used to support the Company’s growth strategy.
Balance Sheet Strengthened: Primarily as a result of the Reg. S notes issue, GeoPark ended 2010 with total debt of US$169.4 million and cash balances of US$99.4 million, resulting in a consolidated net debt of US$70 million including short term working capital loans and overdrafts from local banks. Gearing increased to 43% at the end of 2010, compared to 30% a year earlier.
Capital Expenditure Increase of 44%: Capital expenditure in 2010 increased to US$58.0 million in 2010 compared to US$40.4 million in 2009, driven primarily by an increase in drilling activity on the Fell Block.
Operational Highlights
Production Volumes Up 10%: Production averaged 6,947 barrels of oil equivalent per day (boepd) in 2010 compared to 6,320 boepd in 2009. Gas production declined by 2% but oil production rose 59%, resulting from a strategy by GeoPark to produce and develop more valuable oil production.
2P Reserves Up 29%: 2P reserves increased to 49.6 million barrels of oil equivalent between 30 June 2009 and 31 December 2010, the date of the most recent evaluation by DeGolyer and McNaughton (D&M). Allowing for production, 2P reserve additions increased by approximately 29% over this period. These results yield a 2P reserve replacement ratio of 289% for the period in-between both reports. D&M estimated 3P reserves of 156.8 million barrels of oil equivalent. D&M assess the Net Present Value of GeoPark’s unrisked 2P and 3P reserves, on a post-tax basis and incorporating a 10% discount rate, to be US$849 million and US$2,039 million respectively.
80% Drilling Success: GeoPark drilled, completed and placed into production 12 wells out of 15 wells drilled during 2010 (compared to a record of nine out of nine wells drilled and put on production in 2009). The 2010 drilling programme represented a balance between exploration, appraisal and development prospects and included the oil field discovery at Guanaco.
Tranquilo Block Start-up Drilling: Following the acquisition and interpretation of 2D and 3D seismic surveys on both the Otway and Tranquilo blocks in Chile, drilling will commence on the Tranquilo block during the second quarter of this year. GeoPark will first drill the Renoval exploration well on the Esperanza prospect in Q2 2011, targeting unrisked mean resources of 715 bcf of gas and having a pre-drill chance of success (estimated by GeoPark to be 28%). GeoPark is the operator in both Blocks.
Infrastructure and Facilities Expansion: GeoPark continued to invest in surface facilities on the Fell Block including adding a new gas delivery point with a capacity of 30 million cubic feet per day (mmcfpd) thereby allowing gas production from the north eastern sector to be transported and sold through an alternative delivery system. Coupled with the 47 mmcfpd capacity of the Kimiri Aike dew point plant, total Fell Block gas production delivery capacity was increased to 77 mmcfpd. At the end of 2010, GeoPark took delivery of a new state-of-the-art hydraulic drilling rig from Petreven, the Italian drilling contractor, with a view to accelerating the exploration and development of its Blocks in Chile.
SPEED improvements: During 2010, GeoPark continued to improve its Health, Safety, Environment and Community Development Program (“SPEED”) by delivering on a comprehensive list of objectives, increasing the safety training of all its employees, effective root cause analysis and follow up of all incidents.
Strategic Developments
LGI Partnership: In March 2010, LG International (“LGI”), the Korean conglomerate, and GeoPark entered into a strategic partnership to jointly acquire and develop a portfolio of upstream projects in Latin America, initially in the US$100- US$500 million range. The partnership has initiated a review of oil and gas upstream opportunities throughout Latin America.
In March 2011, GeoPark and LGI further cemented their relationship by entering into an in-principle agreement for LGI to acquire a 10% equity interest in GeoPark’s Chile business for US$70 million. This development, which is expected to close during Q2 2011, both strengthens each company’s commitment for a long term acquisition partnership and shows the underlying value of the business GeoPark has built in Chile. In a related but separate transaction, GeoPark also agreed to invest up to US$10 million in LGI’s Block 8 in Kazakhstan (subject to regulatory approvals) to participate in the drilling of a large pre-salt oil prospect.
Key Management and Board Additions: During 2010, GeoPark continued to strengthen its management and operational team. Key hires include Carlos Portela, a recognised Colombian petroleum engineer and executive (formerly with BP) who assumed the role of Managing Director, Dr. Carlos Gulisano, formerly Managing Director, joined GeoPark’s Board of Directors.
New Methanex Agreement: In March 2011, GeoPark signed a new commercial agreement with Methanex designed to increase gas production volumes by improving the relative economics of gas exploration and development. The agreement encompasses the drilling of 12 gas wells during 2011.