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Restart of Production Pushed Back but Oil Co. Holds 158% Potential Return

Source: Stephane Foucaud


May 11, 2023 ( Newswire) The delay is due to construction of the surface facilities not being done, noted an Auctus Advisors report.

The expected return to production this month of GeoPark Ltd.'s (GPRK:NYSE) Indico 6 and 7 wells has been pushed back to July, reported Auctus Advisors analyst Stephane Foucaud in a May 5 research note.

"There is improved confidence that date can be achieved," Foucaud wrote.

To offset the resulting drop in full-year 2023 (FY23) cash flow, the oil and gas company reduced its capex guidance for the year.

158% Possible Return

On this news, Auctus revised its model on GeoPark, updating its production and capex estimates and reducing its 2023 Brent oil price assumptions to US$89 barrel from US$92. This led to a US$1 per share reduction in Auctus' target price on the Bermuda-based energy firm to US$25 from US$26.

Despite the change in target, the potential return for investors remains substantial, at 158%, from its current share price of US$10.24.

Offsetting Effect on Cash Flow

The recommencement of production from Indico 6 and 7 in Colombia's CPO-5 block is being delayed until the definitive surface facilities are finished; they are 60-65% complete. GeoPark expects them to be ready in two months.

Because these two wells produce about 2,400-3,300 barrels of oil equivalent per day (2.4-3.3 Mboe/d) net to GeoPark, the delay will decrease the expected FY23 cash flow, Foucaud noted. As such, GeoPark lowed its FY23 production guidance to 38-40 Mboe/d from 39.5-41.5. H2/23 production guidance remains unchanged, at 39-42 Mboe/d.

Also, GeoPark lowered its FY23 capex guidance by US$20 million ($20M), to US$180-200M to offset the reduced cash flow.

"This mostly (75%) reflects more efficient operations and cost reductions but also (25%) a rescheduling of drilling in Ecuador with only one to two wells expected to be drilled in the country in H2/23," Foucaud explained.

Performance Bodes Well

Some good news for GeoPark, Foucaud reported, is that its first horizontal well in the Tigana heavy oilfield (LL-34) in Colombia is still performing well, producing about 3,000 bbl/d with little 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," wrote Foucaud.

More Info: Newswire

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