GeoPark : Third Quarter 2021 Call Transcript

TRANSCRIPT - THIRD QUARTER 2021 RESULTS

CONFERENCE CALL

NOVEMBER 11, 2021

10:00 AM EDT

GeoPark Ltd. - Third Quarter 2021 Results Conference Call, November 11, 2021

C O R P O R A T E P A R T I C I P A N T S

James Park, Chief Executive Officer

Andres Ocampo, Chief Financial Officer

Augusto Zubillaga, Chief Operating Officer

Martin Terrado, Director of Operations

Stacy Steimel, Shareholder Value Director

C O N F E R E N C E C A L L P A R T I C I P A N T S

Ricardo Rezende, J.P. Morgan

Phil Skolnick, Eight Capital

Stephane Foucaud, Auctus Advisors

Augusto Uribe, AIG Investments

Miguel Ospina, Compass Group

Gustavo Sadka, Bradesco

P R E S E N T A T I O N

Operator

Welcome to the GeoPark Ltd. conference call following the results announcement for the third quarter ended September 30, 2021, and the 2022 work program and investment guidelines.

After the speakers' remarks, there will be a question-and-answer session.

If you do not have a copy of the press release, it is available at the Investor Support section on the Company's corporate website at www.geo-park.com.

A replay of today's call may be accessed through this webcast in the Investor Support section of the GeoPark corporate website.

Before we continue, please note that certain statements contained in the results press release and on this conference call are forward-looking statements rather than historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those described.

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GeoPark Ltd. - Third Quarter 2021 Results Conference Call, November 11, 2021

With respect to such forward-looking statements, the Company seeks protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive developments and risk factors listed from time-to-time in the Company's SEC reports and public releases. Those lists are intended to identify certain principal factors that could cause actual results to differ materially from those described in the forward-looking statements, but are not intended to represent a complete list of the Company's business.

All financial figures included herein were prepared in accordance with the IFRS and are stated in U.S. dollars unless otherwise noted. Reserves figures correspond into the PRMS standards.

On the call today from GeoPark is James Park, Chief Executive Officer; Augusto Zubillaga, Chief Operating Officer; Andres Ocampo, Chief Financial Officer; Martin Terrado, Director of Operations; and Stacy Steimel, Shareholder Value Director.

Now, I will turn the call over to Mr. James Park.

Mr. Park, you may begin.

James Park

Thank you and welcome, everyone. We are joining you this morning with our Executive team in Colombia and the U.S. to report on our achievements and financial results during the third quarter of 2021.

Firstly, we would like to recognize and thank the women and men of GeoPark for their resilience and commitment as proven again by our performance in this last quarter.

Production was up compared to last quarter as we continued low-risk development in the Llanos 34 block. Our growing low breakeven production generated strong free cash flow. Revenues doubled from a year ago and Adjusted EBITDA was 54% higher with a net profit of $37 million, the equivalent of $0.61 per share. Every $1 of invested Capex yielded $2.80 in Adjusted EBITDA.

We continue to manage and consolidate our project portfolio by divesting our economically marginal and high-carbon assets in Argentina, expecting to close by year-end. Our Brazil asset divestment is also underway, with expectations to close during the first half of 2022.

Our relentlessly passionate focus on SPEED, our internal value system we refer to as ESG+, included a concrete road map with an accountable schedule to reducing greenhouse gas emissions. Already with a peer-leading low carbon intensity, we embarked on immediate actions to further reduce Scope 1 and Scope 2 emissions by 35% to 40% in the next three years, 40% to 60% by 2025 to 2030, and net-zero by 2050 or sooner.

Of course, we continue to return tangible value to our shareholders through our active dividend and share buyback programs. A new development involves GeoPark shares being included in the S&P Global BMI Index and four S&P subindexes, which represents an expansion of our investor base and opens the opportunity for being included in additional indexes.

During the quarter, we carried out our capital allocation process to develop the work program and budget for 2022. This represents a healthy opportunity to review every asset in the portfolio and make them compete for investment on rigorous technical, economic, strategic, social, and environmental criteria.

Our outcome was a new 2022 investment program of $160 million to $180 million, which targets drilling 40 to 48 wells, composed of 25 to 28 development wells to develop our reserves and increase production and 15 to 20 exploration wells to test a powerful portfolio of high-impactlow-risk prospects on adjacent acreage, which can generate cash flow quickly if successful. It also includes a significant pickup in activity

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GeoPark Ltd. - Third Quarter 2021 Results Conference Call, November 11, 2021

on our CPO-5 block. As always, this is a flexible work program that can be easily adjusted up or down depending on oil prices.

We are giving guidance of a 5% to 10% production increase after divestments on the producing assets, but this does not include one single barrel from the 15 to 20 exploration wells we are drilling next year, all with a chance to find and open up new promising fields.

For 2022, we will be generating significant free cash flow that will self-fund the full enchilada. This includes tangible shareholder returns, balance sheet strengthening including potential deleveraging, a real emission reduction plan, continued efforts to expand scale by acquiring new projects, a growing high- return production base, and an aggressive low-risk big potential exploration campaign.

We believe that being able to self-fund from cash flow and simultaneously achieve these objectives represent the right business model for our industry today and provide GeoPark with a comparative advantage in an energy transitioning world.

Thank you, and we would be pleased to answer any questions you may have.

Operator

Thank you. We will now proceed with the Q&A session.

Our first question for today comes from Ricardo Rezende from J.P. Morgan. Ricardo, your line is now open.

Ricardo Rezende

Hi. Good morning, Jim, Andres, and the whole team. Thanks for taking my question.

A couple of questions on my side related to your 2022 work program. Jim, as you just mentioned, if things go according to the plan, you're going to have a very strong free cash flow generation next year. One of the questions that I have is, would you consider looking at M&A as a potential use of this cash flow? Or you're mostly focusing on developing your current areas?

The second question, I think it's more to Andres, it's on the 2024 notes. As you mentioned in the release, those notes became callable in September. A question here would be, are you looking more upon your liability agent as reducing your nominal amount of debt, or it's mostly a liquidity exercise that you could be doing with those notes? Thank you.

Andres Ocampo

Hi, Ricardo. Good morning. Andres here.

The priorities for our free cash flow generation during 2022 are not changed from historically what we do every single year. The first priority is to fund the development of our reserves. Second is our activity and fund our exploration campaign. Third, it's always a combination of debt reduction, deleveraging, and shareholder value return. We do have M&A as part of our business model, and it's part of what we do and always consider it in the context of always funding our portfolio and deleveraging our Company.

I would say probably the priority for 2022, given earlier this year we did the liability management transaction to organize our debt in a way that can gradually be repaid, probably in 2022 with such a busy drilling campaign, the priority is going to be for any excess cash to be used for deleveraging and shareholder value returns.

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GeoPark Ltd. - Third Quarter 2021 Results Conference Call, November 11, 2021

To your second point, the fact that the bonds became callable in September means that now we can actually exercise the option to repay them in full or in part at any point in time over the next years until maturity. That is what changed.

When we did the liability management transaction, our bonds were not callable, so that was the way we needed to do it to actually repay a significant part. But with this new structure, it means that we can exercise the call at any point in time to pay them down.

Ricardo Rezende

Thanks, Andres. That's very clear. Thank you.

Andres Ocampo

Thank you.

Operator

Thank you, Ricardo.

Our next question for today comes from Phil Skolnick from Eight Capital. Phil, your line is now open.

Phil Skolnick

Yes. Thanks. Good morning.

My first question is with respect to your exploration program, the 15 to 20 wells, how do we think about that in terms of the positive impact it can have on the 2022 program? I guess, how many of those are short-cycle in nature to allow for it?

Andres Ocampo

Hi, Phil. Good morning. Thank you for your question.

It's as you said, it's a significant exploration campaign, 15 to 20 wells. Most of what we're doing is really our bread and butter, this is what we have been doing for many years, and this is the type of exploration that we were doing when we discovered Llanos 34 or started discovering the fields in Llanos 34 in early 2012.

We can say that all or really most of these prospects are all really short cycle. In the event of a discovery, almost all of these prospects which could become potential fields can be brought to production pretty fast after discovery. Pretty fast is within a month, probably would be a good assessment. Any particular event may delay that perhaps two months, but nothing like the typical offshore exploration that may take significantly more. I would qualify 100% of our exploration portfolio in 2022 as being short cycle.

Phil Skolnick

Okay. Great. That's perfect. In terms of the flexibility around the program, you laid out the $50 to $80 Brent pricing. How do we think about that in the context of your 2022 production guidance? If you go to $50, what does that mean? If you go to $80-I mean, obviously, the $80 would be an upside potential, but the $50, how do we think about that?

Andres Ocampo

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