GeoPark Limited (NYSE: GPRK): Positive exploration results open multiple new areas of material production growth
• 3Q23 production had already been reported. GeoPark held US$106 mm in cash at the end of September, which is in line with our expectations.• 25-30 feet of hydrocarbon pay were encountered in the Guadalupe formation at the high impact Halcon-1 exploration well at CPO-5. The OWC was not encountered. The Guadalupe formation is one of the producing formations at Llanos-34 and is the reservoir that GeoPark was looking for. The well will now be tested. An appraisal well (Perico-1) will spud adjacent to Halcon-1 before YE23 to delineate the play.
• At Llanos-87, the Zorzal Este 1 exploration well encountered 40 feet of hydrocarbon pay (no OWC encountered) in the Guadalupe and will be tested in November. A new appraisal well will spud at Zorzal Este by YE23.
• At Block 123, a new appraisal well will be spudded at Toritos by YE23 and GeoPark is currently drilling the Bisbita Centro-1 exploration well.
• In light of the positive exploration drilling results and the extensive FY24 appraisal programme, Llanos-87, Llanos-123 and the Perico block (Ecuador) could become material producers by YE24 (Llanos-123 and Perico already produce ~2.1 mbl/d and ~2.4 mbbl/d gross respectively).
• Pending further details on the exact sizes of the resources at Llanos-87, Llanos-123, Perico and Halcon, we re-iterate our target price of US$25/sh. The story benefits from multiple drilling catalysts in 4Q23 and beyond.
FY24 Guidance
GeoPark expects to produce 37-40 mboe/d in 2024. While this is below our expectations of ~41 mboe/d, this reflects the fact there will be no investment (and therefore steep production decline) in lower value assets such as Chile or Platanillo. The US$150-200 mm FY24 capex programme includes a very wide range of appraisal wells at Llanos 87/123 (3-9 wells) and in Ecuador (2-7 wells) depending on the results of the initial wells. Given the potential materiality of these assets, the YE24 production could be much higher than the FY24 average production guidance. The FY24 production guidance includes 33-35.5 mboe/d in Colombia, 1.6-2.0 mbbl/d in Ecuador, 1-1.3 mboe/d in Chile and 1-1.2 mboe/d in Brazil. 30% of the total capex will be allocated to exploration with 1-2 wells on the Put-8 Block, 1 well at Llanos-87/123, 1-2 wells at Llanos-34 and 1 well at CPO-5.
Valuation and shareholder distribution policy
Our Core NAV of ~US$17/sh and ReNAV of ~US$24/sh incorporate the FY24 production profile and the FY24 capex and exploration programme. Our valuation for Llanos-87/134 and Perico is broadly unchanged pending further visibility. The company is distributing >50% of its Free Cash Flow (FCF) in 2023. 40-50% of FY24 FCF (that we estimate at US$150 mm) will be distributed to shareholders as dividends or share buybacks.
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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