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

Source: Stephane Foucaud

 

May 11, 2023 (Investorideas.com 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.

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