GeoPark Limited (NYSE: GPRK): Protecting shareholder returns as lower capex offsets delayed production
• 1Q23 production of 36,578 boe/d had already been reported.• The Indico 6 and Indico 7 wells in the CPO-5 block in Colombia are now expected to return to production in July (rather than May) when the definitive surface facilities are completed. The facilities are 60-65% complete and there is improved confidence that date can be achieved. These two wells represent ~2.4-3.3 mbbl/d net to GeoPark.
• As a result of this delay and combined with the shut-in production of approximately 400 bopd in Chile due to ongoing commercial negotiations with ENAP, the oil offtaker, GeoPark has reduced its FY23 production guidance from 39.5-41.5 mboe/d to 38.0-40.0 mboe/d which is very close to our previous forecast of 39.9 mboe/d. 2H23 production is expected to stand at 39-42 mboe/d.
• The negative impact on the FY22 cash flow is offset by a US$20 mm reduction in the FY23 capex guidance to US$180-200 mm. This mostly (75%) reflects more efficient operations and cost reductions but also (25%) a rescheduling of drilling in Ecuador with only 1-2 wells expected to be drilled in the country in 2H23. Overall GeoPark continues to expect to generate Free Cash Flow of US$120-140 mm in 2023 for Brent of US$80-90/bbl.
• As we update our production and capex forecasts and trim our Brent price assumptions from US$92/bbl to US$89/bbl in 2023, we have changed our target price to US$25 per share.
Other important take away
In 2Q23, GeoPark will drill 2-3 new exploration wells at Llanos 123 and 124. The high impact Halcon well at CPO-5 will be drilled in 2H23. Overall 6-8 new exploration wells will be drilled in the balance of 2023. The first horizontal well in the Tigana field (LL-34) continues to perform very well. Oil production from the well continues to be ~3,000 bbl/d with hardly any drawdown and no water. This is important as other horizontal wells are expected to be drilled and they could increase production at LL-34 to the high end of the FY23 guidance and potentially extend plateau production.
Valuation
Our Core NAV is now ~US$17/sh (ReNAV of ~US$25/sh). Following the recent share price drop, our aggregate free cash flow forecast over 2023 2024 now represents >50% of the current market cap and the current dividend represents a ~5.4% dividend yield.
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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