• Revenue: Increased by 14% to $190 million.

• Adjusted EBITDA: Increased by 15% to $128 million, with an EBITDA margin of 67%.

• Net Profit: $25.7 million, equivalent to $0.50 per share.

• Capital Expenditures: $49 million invested in the second quarter.

• Return on Average Capital Employed: 38% over the last 12 months.

• Net Free Cash Flow: Ended the quarter with a cash position of $66 million.

• Share Repurchase: $43.7 million worth of shares repurchased through a Dutch auction.

• Dividends: $7.5 million paid for the quarter, with an additional $7.5 million approved for September 12.

• Production Increase: Consolidated production is 5,000 to 5,500 barrels a day higher following the Vaca Muerta acquisition.

• Mata Mora Norte Block Production: Averaged 12,500 barrels a day gross in the second quarter.

• Warning! GuruFocus has detected 10 Warning Signs with ASX:CQR.

Release Date: August 15, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• GeoPark Ltd (NYSE:GPRK) reported a 14% increase in revenue to $190 million for the second quarter, driven by higher oil prices.

• Adjusted EBITDA rose by 15% to $128 million, resulting in a strong EBITDA margin of 67%.

• The company demonstrated capital discipline by generating almost three times its capital expenditures in adjusted EBITDA.

• GeoPark Ltd (NYSE:GPRK) continues to enhance financial flexibility with strategic oil prepayment agreements, providing additional liquidity.

• The company is on track to exceed shareholder returns from 2023, with over $66 million returned to shareholders by the end of the third quarter.

Negative Points

• Net profit was impacted by non-cost charges related to the devaluation of the Colombian peso, affecting deferred income taxes.

• Operational challenges were noted, including increased blockages in key blocks, which could affect production targets.

• The company faces potential risks from social unrest, which has led to higher-than-expected downtime in production blocks.

• GeoPark Ltd (NYSE:GPRK) may be at risk of being on the low end of its production guidance due to operational disruptions.

• The company is experiencing a decline in mature fields, with Llanos 34 expected to decline by 10% to 15% despite ongoing activities.

Q & A Highlights

Q: Can you share your outlook on production progress in Argentina for the second half of the year and into 2025? Also, are there any potential inorganic opportunities GeoPark is targeting? A: Rodrigo Dalle Fiore, New Development and Portfolio Director, stated that production in Argentina is expected to increase gradually, with a target of reaching 13,000 to 14,000 barrels per day by year-end. For 2025, the introduction of a second drilling rig is anticipated to help achieve a production target of 20,000 barrels per day. Regarding inorganic opportunities, Jaime Uribe, CFO, emphasized that acquisitions are a key strategy, focusing on assets that provide immediate production capabilities, scale, and are located in Colombia, Argentina, and Brazil.

Q: What is the maximum level of leverage GeoPark is comfortable operating at? A: Jaime Uribe, CFO, mentioned that a gross debt to EBITDA ratio of 1.5 is manageable for GeoPark. While the company is not near this level currently, it is open to opportunities that might temporarily increase leverage to this threshold, maintaining prudent financial discipline.

Q: Could you provide an update on current production levels in the Llanos and Argentina, and explain the lower cash tax payments in Colombia? A: Martin Terrado, COO, reported that production in the Llanos is around 28,000 barrels per day net, with exploration activities ongoing. In Argentina, production is steady at 12,500 barrels per day. Jaime Uribe, CFO, explained that lower cash taxes are due to reduced withholding tax rates and more deductible items, with an expected total tax payment of $95 million for the year.

Q: Can you elaborate on the new prepayment agreement with Trafigura and its impact on CPO-5 production? A: Jaime Uribe, CFO, explained that the agreement focuses on lighter crudes from CPO-5, capturing a premium over Brent. The 12-month agreement, starting August 1, provides GeoPark with the option for up to $100 million in financing, enhancing financial flexibility.

Q: What are the long-term production expectations for the Llanos 123, Espejo, and Putumayo 8 blocks? Also, can you discuss the performance of the Mata Mora Norte 2223 well? A: Martin Terrado, COO, stated that Llanos 123 is producing 1,800 barrels per day net, with further drilling planned. Putumayo 8 is in the exploration phase, with initial drilling expected soon. Rodrigo Dalle Fiore, New Development and Portfolio Director, highlighted that the Mata Mora Norte 2223 well is performing above expectations, with peak production at 2,500 barrels per day, indicating potential for similar results in future wells.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.