GeoPark Makes 'Significant' Progress in 2010
GeoPark provided an operations update for 2010. Final results for the year ended December 31, 2010 will be released during the first half of April 2011.
For GeoPark, 2010 represented its fifth successive year of strong growth in all key oil and gas performance measures. Importantly, the Company is now positioned for accelerated expansion in 2011.
Operationally in 2010, oil and gas production grew and reserves increased. Financially, revenues and cashflow grew and the Company achieved profitability. Strategically, the Company entered into a partnership with LG International (LGI), the Korean conglomerate, to acquire new projects throughout Latin America and raised US $133 million through a substantially oversubscribed bond placement in Chile to fund new project acquisitions. In response to these achievements, GeoPark's market value more than doubled during 2010.
- 80% Drilling Success: GeoPark drilled, completed and put into production 12 out of 15 wells drilled during 2010 (compared to 9 out of 9 wells drilled and put into production in 2009). The drilling program, which was part of a total US $60 million capital expenditure program, represented a balance between exploration, appraisal and development prospects and included an attractive oil field discovery in Guanaco. GeoPark is expecting to drill eight new wells to develop and produce the Guanaco field during 2011.
- 10% Oil and Gas Production Increase:GeoPark's net oil and gas production increased to approximately 7,000 barrels of oil per day equivalent (boepd), led by a 58% growth in oil production and with broadly constant gas production. The total increase was below guidance given at the time of the 2010 first half results and reflects a combination of steeper than expected decline curves on certain wells, a series of facility bottlenecks and the late commissioning of a new drilling rig, which prevented drilling through November and December. GeoPark is contracting a second drilling rig during the first half of 2011 to recover this lost time and accelerate its drilling on the Fell Block during 2011.
- 29% Growth in 2P Reserves: Management estimates an increase of approximately 29% in 2P oil and gas reserves, after deducting production for the period, to around 50 million barrels of oil equivalent at year-end, compared to the last independent reserve certification completed in July 2009 by DeGolyer and MacNaughton. This estimated increase results from a 62% growth in 2P oil reserves and a 18% growth in 2P gas reserves. DeGolyer and MacNaughton is currently completing its independent evaluation and will issue its report around the time of the Company's year-end results.
- High Impact Tranquilo Block Prospect: The Company's geoscience team continued to expand its development and exploration prospect inventory on the three Chilean blocks. Following 2D and 3D seismic surveys and interpretation on GeoPark's newly-acquired Tranquilo and Otway blocks, GeoPark is preparing to drill the Esperanza prospect on the Tranquilo Block in the first half of 2011. Esperanza is a high risk prospect targeting unrisked mean resources of 715 billion cubic feet of gas. A re-organization of equity interests in the Tranquilo and Otway blocks, once ratified by the Chilean Government, will result in GeoPark having a 25% working interest and operatorship of both blocks.
- Infrastructure and Facilities Expansion: GeoPark continued to invest in surface facilities to commercialize its drilling successes on the Fell Block and increase its operational efficiency. During 2010, a fourth compressor was added at the Kimiri Aike Dew Point Plant, increasing gas handling capacity to 88 million cubic feet per day. Additional investments in 2010 included a gathering system line expansion, well-site production facilities and alternate access routes to the main regional pipeline. At the end of 2010, GeoPark took delivery of a new state-of-the-art hydraulic drilling rig from Petreven in an effort to increase the speed of drilling wells and an overall targeted 15-20% reduction in drilling costs. The rig is scheduled to begin drilling in early February 2011.
- 80% Revenue Growth: Total revenues in 2010 increased by approximately 80% to US $81.0 million, compared to US $44.8 million reported in 2009. Higher revenues in 2010 reflect a combination of higher production volumes, a further rebalancing of production in favor of oil and higher average prices for both oil and gas. Average oil prices in Chile increased by 43% to US $72 per barrel in 2010, whereas average gas prices increased by 46% to approximately $3.13 per thousand cubic feet.
- 100% EBITDA Increase: EBITDA increased to approximately US $40 million in 2010, more than twice the level of US $18 million reported in 2009. EBITDA per barrel of oil equivalent produced increased from approximately US $7.70 to US $16.20 per barrel, an increase of 110%.
- Achieved Profitability: GeoPark expects to realize positive net income for 2010 (compared to a loss of US $8.0 million in 2009).
- US $133 Million Funding: In December 2010, GeoPark successfully placed US $133 million of notes (7 3/4% 5 year Reg-S) principally with Chilean investors. This funding provides GeoPark with approximately US $100 million to support new project acquisitions and to complement the LGI acquisition partnership. The remaining proceeds are to be used to partially re-finance existing debt facilities and partially fund the 2011 work program. At the end of 2010, GeoPark had net debt of US $70 million, comprising term debt (including the notes) of US $174 million and cash of approximately US $104 million.
- LGI Latin American Acquisition Partnership: In 2010, LGI and GeoPark entered into a new strategic partnership to jointly acquire and develop upstream projects in Latin America, initially in the US $100-500 million range. The partnership has initiated a review of oil and gas upstream opportunities throughout Latin America, with projects currently being evaluated in Chile, Argentina, Brazil, Peru and Colombia, and is targeting the closing of the first project in 2011.
- Strengthening of the Team: During 2010, GeoPark continued to strengthen its management and operational team. Key hires include Carlos Portela, a recognized 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.
2011 Outlook and Investment Program
GeoPark's 2011 investment program is expected to involve a combination of organic and acquisition-led growth. Total capital expenditure on existing blocks in Chile and Argentina is budgeted to be approximately US $70-80 million.
The projected 2011 work program will include drilling between 20-25 wells - primarily to continue to explore and develop the Fell Block and to begin initial exploration of the Tranquilo Block. Two drilling rigs will be employed during the first half of 2011 and one drilling rig during the second half. Additional investment will be made in new facilities on the Fell Block including an oil treatment plant in the Alakaluf area and several tie-ins and de-bottlenecking of gas production facilities.
Average oil production is forecasted to grow by 40-50%, with total oil and gas production expected to grow by approximately 10-15%.
Commenting, James Park, Chief Executive Officer, said, "GeoPark continued to grow and take significant steps forward in 2010 -- putting in place many of the building blocks that will enable the Company to transition into being a larger entity over the medium term. We believe 2011 will mark an inflection point for GeoPark, and we look forward with confidence that we will continue to deliver growth in value for our shareholders."
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